CSE Global - OCBC Investment 2017-02-24: Reducing Dependence On Oil & Gas Sector

CSE Global - OCBC Investment 2017-02-24: Reducing Dependence On Oil & Gas Sector CSE GLOBAL LTD 544.SI

CSE Global - Reducing Dependence On Oil & Gas Sector

  • FY16 within expectations.
  • Order intake remains weak.
  • Anticipates 1Q17 to be weaker than usual.

FY16 total dividend of 2.75 S-cents 

  • CSE Global Limited’s (CSE) FY16 PATMI from continuing operations met our expectations as it fell 30.9% to S$21.2m, and formed 101.5% of our FY16 forecast. 
  • Revenue declined 22.9% to S$317.8m mainly due to lower revenue from its oil & gas (O&G) sector on lack of large greenfield projects. 
  • FY16 gross margins improved 3ppt to 31.7% due to better margins achieved from increased sales of higher margin infrastructure projects and completion of some projects. 
  • However, order intake remains weak as new orders received in FY16 declined 18.3% to S$286.6m mainly due to lack of large greenfield projects, which led to a 15.4% fall in outstanding orders to S$163.1m. 
  • CSE has also recommended a final dividend of 1.5 S-cents, bringing the total dividend for FY16 to 2.75 S-cents.

Guided for FY17 performance to be similar to FY16 

  • Looking ahead, the drag on profitability from O&G sector is likely to persist despite a stabilising environment as we do not expect orders to rebound immediately in FY17. However, CSE’s strategy to reduce dependence on O&G sector is seeing results as EBIT contribution from O&G industry has fallen from 76% in FY15 to 63% in FY16.
  • That said, CSE guided for a weaker performance in 1Q17 due to delays in award of several projects in 1H17. 
  • And as CSE continues to diversify into midstream and downstream businesses, and expand into new shale formations in the U.S. to sustain revenue base, coupled with improved performance for its mining and infrastructure segments, management guided for its FY17 performance to be similar to FY16. 
  • CSE intends to maintain the same dividend distribution for FY17. Beyond FY17, we expect larger orders to support improved performance in FY18.

Supported by 5.7% forward dividend yield 

  • As we introduce FY18 forecasts and look beyond FY17 on stabilising O&G environment, we roll-forward our valuations to 9x FY18F PER.
  • Maintain HOLD with a higher FV of S$0.44 (prev: S$0.40)

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-02-24
OCBC Investment SGX Stock Analyst Report HOLD Maintain HOLD 0.440 Up 0.400