CSE Global - RHB Invest 2018-11-09: Go With The Flow

CSE GLOBAL LTD (SGX:544) | SGinvestors.io CSE GLOBAL LTD (SGX:544)

CSE Global - Go With The Flow

  • Maintain BUY and DCF-backed Target Price of SGD0.59, 30% upside and 6% yield.
  • CSE Global's 3Q18 net profit grew 67% y-o-y on higher revenue (+8% y-o-y), and gross margin improvement to 27.5% (FY17: 26%) driven mainly by oil & gas sectors revenue in North America. With enthusiasm in expanding its foothold, acquisition plans remain intact.
  • Albeit at a lower order intake in 3Q18, growth momentum is likely to continue into FY19.

3Q18 net profit grew by 67% y-o-y

  • CSE Global's 9M18 revenue and net profit met at SGD277m and SGD15m respectively. Topline and bottomline were 75% and 80% of FY18F.
  • We expect CSE Global to continue this positive momentum and as such, we keep to our full-year forecast for FY18-19 unchanged.

Flow business continues to grow.

  • Flow business from brownfield and small greenfield sites in 3Q18 accounted for about 90% of topline. High flow business ensures a higher recurring base of revenue and higher earnings visibility.
  • 3Q18 order intake was entirely attributed to the flow business in the absence of large greenfield projects. Despite a lower order intake y-o-y (-6.4%), it remains at a healthy level of SGD80.9m – between SGD80m and SGD90m as guided by management.
  • Orderbook stood at SGD136.5m as at 30 Sep 2018.

Strong cash position and clean balance sheet.

  • We like CSE Global for its strong cash position, especially during such a time where uncertainties cloud the markets. Net cash position strengthened to SGD34.4m from SGD20.9m a quarter ago, leaving ample room for dividends and expansion.
  • Cash flow from operations of SGD24.8m was largely the result of higher collections from trade receivables on milestone payments.

Potential acquisitions to fuel next leg of growth.

  • We remain hopeful that potential acquisitions would materialise by 1H19. Any ticket size of USD5-10m could boost its NPAT by 5-10%.

Maintain BUY.

  • We keep our FY88F PATMI of SGD88.8m unchanged, as we expect CSE Global’s outlook to remain positive.
  • With an aim to expand its foothold, acquisition plans remain on track, and we are likely to see positive earnings growth momentum continue through into FY88F.
  • Short-term pressure on share price amid market turmoil presents a buying opportunity with an attractive dividend yield of 8%.
  • Our unchanged DCF-backed SGD8.88 Target Price reflects 88.8x FY88F P/E.
  • Key risks include oil price volatility, forex risks, continuously fall in order intake, and execution risks.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2018-11-09
SGX Stock Analyst Report BUY MAINTAIN BUY 0.590 SAME 0.590