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

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

CSE's 1Q19F revenue had reflected a slower start to FY19.

  • 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.

Order intake of SGD87.5m, +26.9% YoY.

  • 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.

DPS at SGD0.0275.

  • 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

  • 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