CSE Global - OCBC Investment 2017-08-11: Cease Coverage

CSE Global - OCBC Investment 2017-08-11: Cease Coverage CSE GLOBAL LTD 544.SI

CSE Global - Cease Coverage

  • Weak margins erode bottom line.
  • Still in net cash position.
  • 1.25 S-cents dividend for 2Q17.

Core 1H17 missed on weaker margins 

  • CSE Global Ltd’s (CSE) 1H17 revenue rose 1.0% YoY to S$160.1m due to higher contributions from the Asia Pacific region (+38.8%), particularly in the infrastructure sector, but offset by weakness in the Europe/Middle-East/Africa (-17.8%) and the Americas (-9.8%) regions. 
  • While 1H17 operating expenses remained largely flat YoY at S$36.1m, operating profit fell 42.9% to S$7.6m, mainly due lower gross margins as a result of the competitive landscape, particularly in the oil & gas (O&G) industry. 
  • CSE also recorded a one-off provision of S$16.8m in 2Q17, arising from a settlement agreement with the U.S government to settle its potential civil liability. Consequently, CSE 1H17 core PATMI declined 45.5% YoY to S$6.0m, and met 29.3% of our FY17 forecast. 
  • New orders received in 1H17 grew 31.9% YoY S$208.6m, mainly due to award of two large greenfield projects in 1Q17 and higher flow orders in 1H17. Outstanding orders as at end- 2Q17 rose 11.4% YoY to S$207.9m.

Outlook remains challenging 

  • Looking ahead, we expect business conditions in the O&G industry to remain challenging and unlikely to see significant recovery for the rest of FY17. 
  • CSE will focus on executing the existing backlog and deliver the flow orders while keeping a look out for any new business opportunities that may arise either from its current operations or new investments in the O&G sector. Growing its infrastructure segment continues a key focus to mitigate the softness from the O&G segment.
  • CSE guided that for 3Q17 and FY17, it expects to report weaker operating performance as compared to the same corresponding period in FY16, but expects to remain in net cash position at the end of FY17.

Comforted by strong balance sheet 

  • All considered, CSE’s outlook remains uncertain given the volatile O&G sector. 
  • Nonetheless, the group continues to focus its efforts on diversifying away from being too reliant on O&G customers, and we remain comforted by its strong balance sheet. 
  • Due to a redistribution of internal resources, we are CEASING COVERAGE on CSE.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-08-11
OCBC Investment SGX Stock Analyst Report CEASE Maintain HOLD 99998 Same 0.450