CSE Global - RHB Invest 2019-02-22: In The Right Place At The Right Time; BUY

CSE GLOBAL LTD (SGX:544)

CSE Global - In The Right Place At The Right Time; BUY

Maintain BUY, as we lift our DCF-based Street-high Target Price to SGD0.60 from SGD0.59, implying 30% upside plus 6% yield.
CSE Global’s FY18 revenue grew 4% y-o-y to SGD 376.8m on a wider GPM of SGD 27.9% (FY17: 26%). Net cash doubled to SGD37.9m due to strong cash inflow from operations, totalling SGD56.3m.
Its full-year DPS of SGD0.0275 is in line with our estimate.

CSE GLOBAL LTD (SGX:544)’s FY18 PATMI of SGD20.1m far exceeded FY17’s adjusted PATMI of SGD13.3m (+50.8% y-o-y).
In our 16 Jan note titled CSE Global - Wins On Home Ground; Maintain BUY we expected its results to be in line, if not better than estimated. The company’s FY18 net profit of SGD19.4m beat our forecasted NPAT of SGD18.2m, on both revenue and margin improvements.
CSE Global's net profit margin improved to 5.3% from 3.7% in FY17, and is expected to remain stable in the near term. This, coupled with the healthy intake of orders and a solid order backlog, leads us to boost our FY19-23F NPAT by 11-13%.

First, the commissioning of two large greenfield projects will be completed in 1H19 – which will see the balance contract value recognised and maybe even the start of maintenance services for both.
Second, its infrastructure segment should see lower margins, as it commences work on government contracts. We can also look forward to possible contract wins, and potential yield-accretive acquisitions this year.

Exceptionally good cash inflow from operations of SGD56.3m has provided CSE Global with a comfortable level of working capital to take on bigger projects and fund acquisitions. DPS is likely to be consistent with FY18’s level, as the group looks to utilise its cash pile to take its business to the next level.
We remain positive on yield-accretive acquisitions, which will likely happen over the next couple of months.

The large infrastructure project (we estimate the value to be c.SGD60m), which the group secured in end-2018, contributed to the total order intake of SGD384.2m for FY18 – slightly above FY17’s SGD381.9m.
Against a buoyant macro-economic environment – especially within the Singapore infrastructure space – we are optimistic that CSE Global’s winning streak will remain in place, and that it will win more contracts while maintaining profitability. We expect CSE Global to continue recording positive numbers. As such, we increase our NPAT forecasts for FY19-23 by 11-13%.
Key downside risks include oil price volatility, forex risks, declining order intake, lower margins and execution risks.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2019-02-22

SGX Stock Analyst Report BUY MAINTAIN BUY 0.60 UP 0.590