CSE Global - UOB Kay Hian 2019-05-08: 1Q19 Results In Line; Orders Rolling In

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CSE GLOBAL LTD (SGX:544)

CSE Global - 1Q19: Results In Line; Orders Rolling In

• CSE GLOBAL LTD (SGX:544) posted a 1Q19 core net profit of S$4.6m (+5.3% y-o-y). The 1Q19 performance represented 21.8% of our estimate. 1Q19’s order intake rose 26.8% y-o-y as O&G activities picked up.
• Management anticipates a ramp-up in activities and expects a better financial performance in 2019.
• Given the positive outlook, re-iterate BUY and PE-based target price of S$0.62.

RESULTS

1Q19 results in line with expectations.

• CSE GLOBAL LTD (SGX:544) reported a core net profit increase to S$4.6m in 1Q19 from S$4.4m a year ago, driven by an improvement in gross margin which rose 0.9ppt y-o-y.
• Revenue slipped 7.4% y-o-y to S$85.4m, mainly attributable to lower large greenfield revenue and a delay in delivery schedules of some projects in the Americas.
• Gross profit decreased to S$23.7m (-4.1% y-o-y) while gross margin expanded marginally to 27.7% (1Q18: 26.8%).

Improving gross margin trend.

• Gross margin continued to improve in 1Q19, rising 0.9ppt y-o-y. This was due to an improving margin mix from the Americas.

Order intake rising.

• For 1Q19, CSE Global's order intake rose 26.8% y-o-y to S$87.5m as activities in the O&G segment picked up. The rise in order intake brought outstanding orders to S$182.2m (+22.6% y-o-y).

STOCK IMPACT

Organic and inorganic growth strategy.

• While CSE Global continues to see a lull in large greenfield O&G project wins, it is still focused on building up order wins of small greenfield and brownfield projects.
• CSE Global is also actively exploring opportunities to build its footprint in the Americas and Australia through acquisitions and new set-ups.

Serba Dinamik update.

• We understand that CSE Global is working with Serba Dinamik to explore potential collaboration beyond Petronas contracts.

EARNINGS REVISION/RISK

• No revision to earnings estimates.
• Risks include weak oil prices and volatility in forex rates.

VALUATION/RECOMMENDATION

• Re-iterate BUY and PE-based target price of S$0.62, pegged to peers’ average of 15x 2019F PE.
• Going forward, we see potential price upside, especially in 2019 as the impact of the synergies between Serba and CSE Global start to flow in, which could come in the form of JVs or possible sub-contracting work from Serba.

SHARE PRICE CATALYST

• Large greenfield infrastructure project wins.
• Large greenfield O&G project wins.
• Accretive acquisitions.

Yeo Hai Wei UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-05-08

SGX Stock Analyst Report BUY MAINTAIN BUY 0.620 SAME 0.620