CSE Global - UOB Kay Hian 2018-11-09: 3Q18 Results Above Expectations; Yields Remains Attractive At 6.0%

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CSE Global - 3Q18: Results Above Expectations; Yields Remains Attractive At 6.0%

  • CSE’s 9M18 core net profit of S$13.8m came above our expectations, representing 80.7% of our full year estimates.
  • 3Q18 turned in a core net profit of S$5.1m compared with a loss in 3Q17, driven by stronger y-o-y sales growth of 8.0% and moderate improvement in gross margins.
  • At current price, the stock offers a generous 2018 dividend yield of 6.0%.
  • Maintain BUY with PE-based target price of S$0.59.


3Q18 results above expectations.

  • CSE Global (CSE) reported a strong set of results with core net profit rising to S$5.1m in 3Q18 from a loss position of S$97k a year ago, driven by revenue growth and moderate improvement of gross margins (+2.4% y-o-y).
  • Revenue rose 8.0% y-o-y to S$92.4m, driven by stronger performance from infrastructure and oil & gas segments.
  • Gross profit leaped to S$25.4m (+18.1% y-o-y) as gross margins continue to surprise on the upside, coming in at 27.5%.

Improving gross margin trend.

  • Gross margin continued to improve in 3Q18, up 2.4ppt y-o-y. Sequentially, gross margin improved 0.6ppt. This was due to contributions from more small projects which commands higher gross margins and ongoing cost management.

Infrastructure and oil & gas leading growth.

  • For 3Q18, infrastructure’s EBIT rose to S$4.5m (+21.6% y-o-y) while oil & gas EBIT leapt to S$2.8m (+600.0% y-o-y). Sequentially, infrastructure EBIT grew 73.1% and oil & gas EBIT increased 27.3%.
  • In 3Q18, mining & mineral posted a slight loss of S$0.9m mainly attributable to a low margin project completed within the quarter.


Cash hoard to sustain dividends and support inorganic growth through M&A.

  • As a result of its continued strong performance, CSE grew its net cash position to S$34.4m in 3Q18 up from S$20.4m in 2Q18. This should sustain CSE’s dividend target of 2.75 S cents/share or a S$14.2m payout. The dividend target translates to a dividend yield of 6.0%.
  • In addition, the substantial cash hoard may also translate to M&A activities for CSE to generate inorganic growth.


  • No changes in forecasts.
  • Risks include fewer-than-expected project wins and gross margin pressure due to rising competition.


  • Reiterate BUY with a PE- based target price of S$0.59, pegged to peers’ average of 2019F PE of 15.0x.
  • Going forward, we see potential for upside, especially in 2019, as the impact of the synergies between Serba and CSE start to flow in, which could come in the form of JVs or possible outsourcing of work from Serba.
  • CSE Global offers an above-average sustainable yield of 6.0% backed by strong operating cash flow and the willingness to reward minority shareholders.


  • Large greenfield infrastructure project wins.
  • Large greenfield oil & gas project wins.
  • Accretive acquisitions.

Yeo Hai Wei UOB Kay Hian Research | https://research.uobkayhian.com/ 2018-11-09
SGX Stock Analyst Report BUY MAINTAIN BUY 0.590 SAME 0.590