CEI LIMITED (SGX:AVV)
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.
Outlook
- 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
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https://research.itradecimb.com/
2019-08-06
SGX Stock
Analyst Report
0.90
DOWN
0.970
