CSE Global - CIMB Research 2016-12-05: Flight-to-safety stock with guaranteed dividends

CSE Global - CIMB Research 2016-12-05: Flight-to-safety stock with guaranteed dividends CSE GLOBAL LTD 544.SI

CSE Global - Flight-to-safety stock with guaranteed dividends

  • One of the few dividend-paying oil & gas stocks in current volatile times.
  • Strong balance sheet ensures survivability until sector recovers which could be by 2017 based on crude oil prices.
  • We maintain our Add call with an unchanged 9.7x CY18F P/E based target price of S$0.47 (1 s.d. below its 5-year mean).

Weaker year on lower revenue from oil and gas segment

  • The dearth of large oil and gas greenfield projects was the main reason for CSE Global’s sluggish earnings in 2016. While still having its brownfield contracts as a recurrent baseline, bumper margins from greenfield projects were lacking as customers delayed spending and projects in the midst of crude oil price volatility.

Order intake falls for CY16

  • CSE Global saw 9MCY16 orders falling to S$229.0m (from 9MCY15 of S$280m) largely due to oil and gas order intake dwindling to S$151.3m (from S$236.4m). The company enters 4Q16 with an S$179m order book.

Infrastructure cushions revenue fall

  • Management aims to increase infrastructure income to mitigate the fall in oil and gas segment revenue. Infrastructure accounted for 19% of 9MCY16 revenue (from 13% in 9MCY15). 
  • We believe that infrastructure projects (transportation, power and waste treatment) should benefit from the trend of rising government spending in Australia, the US and Asia, hence 2017 could see better days.

Strong balance sheet ensures survivability

  • Despite the sluggish margin outlook, we still favour CSE Global for its strong balance sheet. Net cash (ex-quoted investment) was S$52.9m at end-3Q16 whilst operating cashflow was positive S$57.3m. 
  • Management guided that any acquisitions will likely be minimal in price, so investors can expect that buffer cash for the medium-term.
  • This is also the underlying thesis of our confidence in the stock.

Key is guaranteed dividend

  • Management also mentioned it is committed to S$0.0275 DPS for FY16. The dividend will hardly dent the company’s near-term cash balance and translates into a yield of 6.3% at the current share price. 
  • Given the significant cash pile we will not be surprised if it can maintain the dividend payout in the coming years too.

Maintain Add

  • CSE Global still offers healthy 9.3% ROE, 6.3% dividend yield, steady cashflow generation and a healthy balance sheet despite the flattish earnings outlook. As such, we still favour the stock. 
  • Key downside risks will be further margin erosion from the oil and gas sector, but having said that, we think that CSE Global is poised to wait out the tough times.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2016-12-05
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 0.470 Same 0.470