CEI Limited - CGS-CIMB Research 2019-08-06: Treat It As A Fixed Deposit


CEI Limited - Treat It As A Fixed Deposit

  • We deem CEI LIMITED (SGX:AVV)'s 1H19 revenue (48% of full-year) to be in to be in line as 1H/2H is typically evenly split.
  • 1H19 net profit was slightly below at 46% of full-year forecast. This was due to higher operating costs as there were lower wage credits in 1H19.
  • We maintain our HOLD call but lower Target Price to S$0.90, still based on 10x (3-year historical average P/E) FY20F core EPS.

1H19 earnings slightly below

  • CEI LIMITED (SGX:AVV)’s 1H19 revenue formed 48% of our FY19F expectations. This is roughly in line with its seasonal pattern of revenue being evenly split between the two halves in a financial year.
  • Net profit was slightly below at 46% of our full-year expectations; again the net profit is usually evenly split between the first and second half. The key factor responsible for the slight miss versus our expectations was the 10.1% y-o-y increase in general and administrative costs which was due to lower wage credits in 1H19.


  • There seems to be limited impact from the trade war thus far as CEI is involved in high value/low volume products. CEI serves diverse industries, ranging from analytical instruments, medical equipment, semiconductor equipment, oil and gas products and aviation to displays for industrial applications. As at end-1H19, CEI has an order book to be fulfilled within 2H19 of S$59.6m (1H18: S$66.1m).
  • Net gearing remains negligible. Despite the essentially flat earnings in 1H19, CEI has upped its interim dividends by 3.5% y-o-y to 4.18 Scts. The payout ratio is almost 99%.

Maintain HOLD

  • Given limited capex needs, we believe that CEI will continue with its almost 100% dividend payout trend. On 10x (3-year historical average P/X) FY20F core EPS, our new Target Price for CEI is S$0.90 (previously S$0.97), based on our revised earnings estimates.
  • We cut our FY19-21F EPS forecasts by 5.7-11.6% as we conservatively assume lower sales given the worsening global outlook.
  • Key risks are foreign exchange losses and a pull-back in customer orders. Earnings upside could come from new customers/projects due to the trade tensions.

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-06
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.90 DOWN 0.970