CSE Global 2Q19 - CGS-CIMB Research 2019-08-14: Awaiting The 2H Story

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

CSE Global 2Q19 - Awaiting The 2H Story

  • CSE Global's 1H19 core net profit of S$9.6m accounted for 44% of both our and Bloomberg consensus' FY18 estimates of S$21.7m.
  • CSE Global previously guided for a stronger 2H19F. 2Q19 order intake was strong at S$106.3m, padding end-2Q19F order backlog to S$188.1m
  • 1.25Sct interim dividend declared (unchanged y-o-y); CSE Global maintains its full year dividend guidance of 2.75Scts. It will hold an analyst briefing tomorrow

Revenues up, margins intact

  • CSE GLOBAL LTD (SGX:544)'s 1H19 revenue came in at S$185.3m (+0.5% y-o-y), buoyed by higher 2Q19 revenue of S$99.9m (+8.4% y-o-y, +17% q-o-q).
  • The stronger 2Q19 revenue was due to
    1. higher oil and gas revenues (+8.8% y-o-y/+12% q-o-q) with the delivery of more offshore work; and
    2. strong mining and mineral revenue (+>100% both y-o-y and q-o-q) – we suspect due to more Australian mining work in 2Q19.
  • 1H19 oil and gas and infrastructure revenue fell 4.5% and 5.4% y-o-y, respectively. We believe the completion of offshore projects secured in FY17 and Singapore infrastructure should occur from 3Q19F onwards.

Margins intact

  • CSE Global's 1H19 gross profit margin (GPM) rose to 27.8% (1H18: 26.9%). We believe this was due to more higher-margin infrastructure and offshore oil projects were undertaken.
  • 1H19 EBIT margin was 7.2% (1H18:7.1%).
  • Overall core 1H19 net profit margin was 5.2% (vs. 1H18: 4.7%). We include SFRS lease expense of S$0.2m to derive our core net profit .

Strong order intake

  • CSE Global's 2Q19 order win value rose to S$106.4m (vs. 1Q19: S$90.5m, 2Q18: S$89.1m) driven surprisingly by the mining & minerals division (S$13.8m, +200% y-o-y) and stronger infrastructure orders (+S$31.9m, +31.8% y-o-y).
  • End-2Q19 order backlog was at S$188.1m (vs. S$182.2m at end-Mar 2019).

Interim dividend unchanged; balance sheet still shows net cash

  • CSE Global announced an interim dividend of 1.25Scts, unchanged y-o-y, and maintained its full-year dividend guidance of 2.75Scts.
  • It is still in a net cash position (5Scts/share).

Maintain Add; analyst briefing tomorrow

  • CSE Global is hosting an analyst briefing tomorrow noon. We expect the main questions to centre on the company's
    1. forward order intake,
    2. 2H19 outlook, and
    3. future M&As.
  • Our target price is based on 13.5x CY20F P/E (close to its historical 5-year mean of 13.1x).
  • Stronger-than-expected order wins and GPM are potential stock catalysts.
  • Lower-than-expected order wins and GPM are key risks to our ADD call.

Cezzane SEE CGS-CIMB Research | https://research.itradecimb.com/ 2019-08-14
SGX Stock Analyst Report ADD MAINTAIN ADD 0.600 SAME 0.600