CEI Limited - CIMB Research 2017-02-13: Rewarding shareholders

CEI LIMITED AVV.SI

CEI Limited - Rewarding shareholders

FY16 core net profit was 100% of our forecast.
Revenue declined 1.6% yoy due to the weak Oil & Gas industry and the weaker US$ in FY16.
It declared a 5.2 Scts DPS in 2H16, in line with 2H15, near a 100% dividend payout ratio for FY16.

Rolling over to FY18F, our target price rises to S$1.11, still based on its 9-year average P/E of 9.2x.

FY16 revenue fell by 1.6% yoy due to the weak Oil & Gas industry in FY16. We understand that CEI has a customer in the Oil & Gas industry that accounted for ~10% of sales.
The average US$/SG$ exchange rate was also lower at 1.3807 in FY16 versus 1.4185 in FY15. This resulted in a lower gross profit margin of 23.3% in FY16 versus 25.3% in FY15.
The tax rate was lower due to the write-back of over provision of tax from the previous year.
We trim FY17-19 EPS due to lower revenue expectations.

For 2H16, CEI declared DPS of 5.2 Scts. Together with 1H16 DPS of 4.8 Scts, FY16 DPS amounted to 10 Scts, or nearly 100% of profit. CEI generated S$12.8m in cash from operations and capex was a minimal S$0.6m in FY16.
Borrowings declined to S$2.5m in FY16 from S$7.5m in FY15. Net cash as at end-Dec 16 was S$9.2m.

In terms of outlook, CEI will remain vigilant given the uncertainties created by recent political developments in the international arena. The group expects to remain profitable in FY17.
As at end Dec-16, CEI has an order book of S$46.8m (S$49.0m in Dec 15) that is expected to be fulfilled within FY17.

We maintain our Add call on CEI with a higher target price of S$1.11 as we roll over to FY18F.
We still value CEI using its historical 9-year average P/E of 9.2x. FY19F forecasts are also introduced.
We assume an 80% payout ratio leading to prospective FY17-18F dividend yields of 9.5-10.3%. If CEI sticks to its 10 Scts DPS, dividend yield would be higher at 10.6% for FY17-18F.
Potential catalysts are new order wins and stronger US$.
Key risks are a slowdown in customer orders and a weaker US$.

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-02-13

CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.11 Up 1.04