CSE Global - UOB Kay Hian 2019-08-16: 2Q19 Results In Line; Healthy Orderbook & Positive Outlook

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

CSE Global - 2Q19 Results In Line; Healthy Orderbook & Positive Outlook

  • CSE Global’s 2Q19 core net profit of S$4.8m (+13.4% y-o-y) was in line with expectations, with 1H19 net profit forming 45% of our full-year estimate. Key positives include stronger gross margin (+0.9ppt y-o-y) and a 19.4% y-o-y increase in order intake.
  • CSE Global targets to maintain full-year dividend of 2.75 cents for FY19, translating to a commendable dividend yield of 6.3%. Management anticipates an increase in activities and better financial performance for FY19.
  • Re-iterate BUY and PE-based target price of S$0.62.



2Q19 RESULTS


Results in line with expectations.

  • CSE GLOBAL LTD (SGX:544) reported net profit (excluding forex loss) of S$4.8m (+13.4% y-o-y), with 1H19 net profit forming 45% of our full-year estimates. Revenue rose 8.4% y-o-y, with higher growth achieved in the Asia Pacific (+23.1% y-o-y) and Americas regions (+2.0% y-o-y).
  • The revenue growth in Americas region was marginal as higher time and material revenues achieved was offset by lower large greenfield project revenues recognised in 2Q19. That said, EBIT growth of Americas region (+23.2% y-o-y) was higher vs Asia Pacific (+5.7% y-o-y) due to improvement in gross margin on a better sales mix.

Improving gross margin.

  • Gross margin expanded 0.9ppt y-o-y which contributed to a commendable 26% y-o-y growth in operating profit. However, bottom line was partially offset by a higher effective tax rate at 27.7% (2Q18: 16.2% due to tax credit last year) which should normalise at 23-25% for the full year.
  • CSE Global expects its gross margin to sustain at this level (27-28%) in the coming quarters.

Order intake rising.

  • For 2Q19, order intake rose 19.4% y-o-y to S$106.4m (oil & gas: S$60.7m, infrastructure: S$31.9m, mining: S$31.8m). We note that this is one of the largest order intake for 2Q in the past couple of years. The rise in order intake brought outstanding orders to S$188.1m (+26.4% y-o-y).


STOCK IMPACT


Positive outlook for smaller projects and potentially stronger 2H19.

  • While the lull in large greenfield projects for oil & gas persists, CSE Global expects a steady flow of small projects from its existing customer’s installed base. Brownfield and small greenfield projects made up 93% of revenue in 2Q19.
  • CSE Global continues to explore projects and new investments; large oil & gas greenfield wins will be a positive surprise. There is potential for a stronger 2H19 (2H18 formed 55% of core net profit in FY18) as there were some project delays in 1H19.
  • Overall, management anticipates an increase in activities and better financial performance for FY19.

Attractive dividend yield at 6.3%.

  • CSE Global announced an interim dividend of 1.25 cents/ share (unchanged from 2Q18) and intends to maintain dividend at 2.75 cents/share for FY19. This dividend target translates into sustainable dividend yield of 6.3%.


EARNINGS REVISION/RISK

  • We maintain our earnings estimates.
  • Risks include lower-than-expected project wins and weak oil prices.


VALUATION/RECOMMENDATION

  • Maintain BUY and PE-based target price of S$0.62, pegged to peers’ average of 15x 2019F PE.


SHARE PRICE CATALYST

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





Joohijit Kaur UOB Kay Hian Research | John Cheong UOB Kay Hian | https://research.uobkayhian.com/ 2019-08-16
SGX Stock Analyst Report BUY MAINTAIN BUY 0.620 SAME 0.620



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