CSE Global - OCBC Investment 2016-08-11: Comforted By Solid Balance Sheet

CSE Global - OCBC Investment 2016-08-11: Comforted By Solid Balance Sheet CSE GLOBAL LTD 544.SI

CSE Global - Comforted By Solid Balance Sheet

  • 2Q16 missed expectations.
  • Strong positive operating cash flow.
  • FY16F dividend yield of 5.9%. 

Lacklustre contributions from oil & gas segment 

  • CSE Global Limited’s (CSE) 2Q16 PATMI from continuing operations declined 28.2% YoY to S$5.5m on the back of a 31.9% plunge in revenue to S$74.3m due to lower contributions across all geographic regions, particularly in the oil & gas (O&G) industry on lack of large greenfield projects. 
  • 2Q16 gross margin from continuing operations improved 7.9ppt YoY to 34.4% due to better margins achieved from some completed projects, but this level is unlikely to be the norm ahead. 
  • For 1H16, PATMI from continuing operations fell 24.8% YoY to S$11.0m, and only formed 43.5% of our FY16 forecast. 
  • New orders received in 2Q16 and outstanding orders both saw YoY drop, with proportion of orders from infrastructure segment increasing while oil & gas order flow declined. 
  • CSE also recorded strong operating cash inflow of S$22.7m in 1Q16 on higher billings and collections, which resulted in a solid net cash position of S$49.1m.

Soft earnings outlook on strong cash generating ability 

  • Looking ahead, we expect orders from O&G customers to continue tapering down while infrastructure projects to continue its growth trend. Nonetheless, management has stated that as a result of slowdown in spending within the O&G industry, the lack or reduction in number of projects available may lead to CSE taking on projects with lower margins. 
  • All said, the focus ahead will be on: 
    1. discipline cost management, 
    2. growing orders from infrastructure segment, 
    3. small greenfield and brownfield projects, 
    4. generating positive operating cash flow with efforts put in on billings and collections, and lastly, 
    5. to build presence in Americas and Australia through M&A.

Intends to maintain dividend of 2.75 S-cents for FY16 

  • On missed earnings and softening outlook, we cut our FY16/FY17 PATMI forecasts by 11.0%/5.5%
  • Consequently, rolling-forward to 9x blended FY16/17F PER, our FV decreases from S$0.44 to S$0.43
  • Maintain HOLD, supported by an attractive FY16 forward dividend yield of 5.9%. 
  • CSE guided that it intends to keep dividend for FY16 the same as FY15 at 2.75 S-cents, on the back of strong balance sheet and positive operating cash flow outlook.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2016-08-11
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.43 Down 0.440