CSE Global - RHB Invest 2019-05-08: Positive For FY19; Maintain BUY

CSE GLOBAL LTD (SGX:544)

CSE Global - Positive For FY19; Maintain BUY

Maintain BUY, and high end of consensus Target Price of SGD0.61, 22% upside plus 6% yield.
CSE GLOBAL LTD (SGX:544)'s 1QFY19 core net profit was SGD4.6m (+5.3% y-o-y) on higher gross (1QFY19: 27.7%, 1QFY18: 26.8%), and net (1QFY19: 6.7%, 1QFY18: 6.2%) profit margins despite recording lower revenue of SGD85.4m (-7.4% y-o-y).
We expect revenue to catch up in the next two quarters. As such, we remain positive on this counter, and even included it in our “RHB 20 Jewels 2019 Edition - Top Singapore Small Mid Cap Companies”.

We expected CSE Global's 1Q19F revenue at SGD92-95m – the lowest among the four quarters. Also, contribution from RCS Telecommunications Pty Ltd should only come in 2Q19. However, reported revenue fell short of our forecast, at SGD85.4m.
We understand that there is a delay in certain projects, and we estimate it to be SGD6-8m. We believe CSE Global will catch up in the next two quarters. We also expect better core net profit (1Q19: SGD4.6m), and PATMI (1Q19: SGD5.7m) in the next two quarters on higher revenue. Still, 2Q19 would be important for us to determine how the earnings would pan out for the rest of FY19.
The decreased in 1Q19 revenue was due to a slower business flow in the US and Australia, as well as an absence of the large greenfield revenue. The communications business in Australia recorded a drop from SGD12.1m to SGD7.9m, while the large greenfield project revenue recorded in 1Q18 was SGD7.4m.

New orders received for the quarter were SGD87.5m, compared to SGD69m in 1Q18. The increase came from the oil & gas sector, which contributed SGD65.9m worth of orders, up from SGD49.5m in 1Q18. This brings the backlog to SGD182.2m in 1Q19 (1Q18: SGD148.6m).
Infrastructure segment order backlog stood at 126.5m as at 31 Mar 2019, comprising orders including contracts awarded by the Singapore Government.

With strong net cash position of SGD34.8m, and the confidence of generating positive operating cash flow this financial year, CSE Global's management intends to maintain dividend at SGD0.0275/share.
At the current CSE Global share price, this counter offers an attractive dividend yield of 5.5%.

Maintain BUY and DCF-backed Target Price of SGD0.61, implying 13.7x FY19F P/E.
CSE Global is currently trading at 11.2x FY19F P/E, with an attractive dividend yield of 5.5%.
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/ 2019-05-08

SGX Stock Analyst Report BUY MAINTAIN BUY 0.610 SAME 0.610