CSE Global - RHB Invest 2019-03-26: Buying Into Australia; Stay BUY

CSE GLOBAL LTD (SGX:544)

CSE Global - Buying Into Australia; Stay BUY

Maintain BUY, with new DCF-based Target Price of SGD0.61 from SGD0.60, 12% upside plus 5% yield.
CSE GLOBAL LTD (SGX:544) announced last Friday that it entered into a share purchase agreement to acquire 100% of RCS Telecommunications’ Pty Ltd through its indirect wholly-owned subsidiary, CSE Crosscom Pty Ltd (see CSE Global's announcement). With operations in Queensland, RCS provides communications networking and 2-way radio systems design & implementation.

The aggregate consideration – approximately SGD11.26m – should be satisfied entirely in cash.
Based on RCS’ unaudited financial statement as at 30 Jun 2018, net tangible asset value stood at AUD7.1m. This value of the transaction is at c.1.64x Price-to-NTA. If we assumed the acquisition to be around 8-11x P/E, we are looking at 5-7% (annualised) earnings accretion in FY19F, excluding the initial growth forecast.

The acquisition of RCS helps the group to strengthen its footprint in Queensland, Australia. We are expecting 1-2 more acquisition(s) and deal size(s) could potentially be more substantial than this.
However, we think that this would likely be out of Australia, as we understand management is actively seeking expansion in the oil & gas segment in the US, as well as strengthening its Singapore infrastructure segment.

Healthy order intake and stable margins are setting CSE Global’s earnings growth on an upward trajectory. Coupled with management’s appetite for expansion through earnings accretive M&A, we remain confident this counter should continue to perform well in the near term.
With the recent acquisition of RCS, we lift our FY19F-23F NPAT by 4-6%. As such, y-o-y NPAT growth for FY19F-20F is about 13%.

We lifted our DCF-backed Target Price of CSE Global to SGD0.61 from SGD0.60, reflecting 13.7x FY19F P/E. CSE Global is currently trading at 12.3x FY19F P/E, with an attractive dividend yield of 5%.
Key downside risks include oil price volatility, economic slowdown, 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/ 2019-03-26

SGX Stock Analyst Report BUY MAINTAIN BUY 0.61 UP 0.600