CEI Limited - CIMB Research 2017-08-25: Dividend Stock

CEI Limited - CIMB Research 2017-08-25: Dividend Stock CEI LIMITED AVV.SI

CEI Limited - Dividend Stock

  • CEI Limited's 1H17 results reported on 4 Aug 17 saw a 23% yoy decline in net profit to S$3.6m due to a 2.1% yoy decline in sales and a 10% rise in operating expenses.
  • Interim DPS of 1.04 Scts and special DPS of 3.00 Scts were declared. Dividend payout ratio in 1H17 was 97%.
  • Balance sheet remains strong with net cash of S$5.8m at end Jun-17.
  • We update our forecasts (last update was 13 Feb 17) to reflect the weaker revenue performance and higher operating expenses.
  • Maintain Add with lower target price of S$1.08 (9.74x P/E, 10-year average).

1H17 profit fell 23% yoy 

  • CEI reported its 1H17 results on 4 Aug 17. 
  • Revenue fell 2.1% yoy to S$67.5m while gross profit fell 1.6% yoy to S$16.1m. The gross profit margin in 1H17 was 23.9% versus 23.8% in 1H16. 
  • Operating expenses grew 10% yoy, leading to a 24% yoy decline in operating profit to S$4.2m. Interest expenses fell 72% yoy while associates reported a 16% yoy improvement in profit. 
  • Net profit fell 23% yoy to S$3.6m.

Balance sheet remains strong 

  • CEI's balance sheet remains strong, with a net cash position at end-June 17 of S$5.8m versus S$9.2m at end-Dec 16. CEI pared down its debt position to S$2.0m at end-Jun 17 from S$2.5m at end Dec-16. 
  • An interim DPS of 1.04 Scts (1H16: 1.04 Scts) and a special DPS of 3.00 Scts (1H16: 3.76 Scts) were declared for 1H17. CEI’s dividend payout ratio for 1H17 was 97% versus 89% for 1H16.

Expects to remain profitable in FY17F 

  • CEI guided that the group expects to remain profitable in FY17F. As at end-Jun 17, CEI had an order book of S$53.1m, which was expected to be fulfilled by end-Dec 17 (order book at end-Dec 16 was S$46.8m).

Dividend play 

  • CEI has minimal capex as the group’s utilisation rate hovered in the 60-65% range, according to management estimates. 1H17 capex was a negligible S$275,000.
  • Management does not see full-year capex exceeding S$1m. Given its limited capex needs, we have raised our dividend payout assumption to 90% from 80% previously. 
  • We note that the dividend payout ratio was 97% in 1H17.


  • CEI guided that the increase in operating expenses in 1H17 was to support the higher order book for 2H17F. As at end-Jun 17, CEI had an order book of S$53.1m, which was expected to be fulfilled by end-Dec 17 (order book at end-Dec 16 was S$46.8m).
  • CEI’s top 5 customers (A-E) accounted for 50-60% of sales. Guidance from these companies were as follows: 
    1. Customer A reported a 3.2% yoy increase in 1Q17 revenue. For FY17, customer A is guiding for GAAP EPS to grow by 1.9-6.6% yoy.
    2. Customer B reported a 4% yoy rise in revenue for 2Q17. As at 20 Aug 2017, Bloomberg consensus expects customer B to report a 4.9% yoy revenue jump and a 10.5% yoy gain in GAAP EPS for FY17.
    3. Customer C is not listed, hence no financial data is available.
    4. Customer D reported 10% yoy revenue growth and a 13% yoy increase in adjusted EPS when it announced its 2Q17 earnings on 26 Jul 17. Customer D has revised its FY17 guidance upwards. It now expects FY17 revenue to be in the range of US$19.71-19.89m (previously US$19.51-19.71m) and adjusted EPS to be in the range of US$9.15-9.28 (previously US$9.12-9.28). The revised guidance for FY17 translates into 8-9% yoy revenue growth and 11-12% yoy adjusted EPS growth.
    5. Customer E is not listed, hence no financial data is available.


  • On 22 Mar 2017, TIH Limited announced that it was aware that there were ongoing discussions on a potential transaction involving a change of control at the company. There is no assurance that such discussions will result in any transaction. As far as TIH is aware, the structure of such a transaction, if entered into, is subject to regulatory approval, which is in the process of being applied for.
  • On 18 Aug 2017, TIH Limited updated shareholders that the discussions were still in progress and there was no certainty or assurance whatsoever that these discussions would result in any transaction.
  • A change of shareholdings at TIH Limited may also trigger changes to the ownership structure at CEI. TIHT Investment Holdings Pte Ltd (a subsidiary of TIH Limited) has a 9.04% stake in CEI. CEI’s two other major shareholders are Mr Tien Sing Cheong, Executive Chairman of CEI (10% stake), and Mr Tan Ka Huat, Managing Director (4.58% stake). Mr Tien is about 68 years of age while Mr Tan is approximately 64 years old. Neither Mr Tien nor Mr Tan has any family members involved in CEI.

Valuation & recommendation 

  • We update our forecasts (our last report was on 13 Feb 17 - CEI Limited: Rewarding Share Holders) to reflect the revenue decline in 1H17 and the higher operating expense run rate. 
  • With limited capex needs (management estimated utilisation rate to be in the 60-65% range for 1H17), we raise our dividend payout ratio assumption to 90% from 80% previously. We note that, in 1H17, the dividend payout ratio was 97%.
  • We now value CEI at its 10-year historical average forward P/E of 9.74x versus its 9-year historical average forward P/E of 9.2x previously. Our target price is lowered to S$1.08. Maintain Add.
  • Potential catalysts are new order wins and a stronger US$. 
  • Downside risks are a further slowdown in customer orders and a weaker US$.

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2017-08-25
CIMB Research SGX Stock Analyst Report ADD Maintain ADD 1.08 Down 1.110