CSE Global - DBS Research 2019-09-06: Well-oiled For The Upflow

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

CSE Global - Well-oiled For The Upflow

  • Initiate coverage on CSE Global (SGX:544) with BUY and 39% potential upside to S$0.65 Target Price.
  • Earnings CAGR of 15% from FY19F-21F supported by stable, high recurring revenue; attractive yield.
  • Beneficiary of expected increase in capex of oil majors.
  • Riding on smart nation initiatives in Singapore; increasing infrastructure projects in Australia.

Company Background

Company history.

  • CSE GLOBAL LTD (SGX:544) began operations in 1985 as the engineering project division of Singapore Technologies (ST) Group. Following a management buyout in 1997, CSE was listed on the main board of the Singapore Exchange in 1999.

Operating geography.

  • CSE generated more than 90% of its FY18 revenue outside Singapore, and has operations in the Americas, Asia Pacific, Europe, Middle East, and Africa regions.

Business operations.

  • The group is involved in providing process control systems, telecommunication network, and security solutions in the O&G (onshore and offshore), infrastructure (transportation, power utilities, and water/waste utilities), and mining (commodities and minerals) industries.

Process control systems.

  • Process control systems collect real-time data of a manufacturing process by placing equipment (sensors, measuring devices, etc.) along the production line. This allows companies to monitor and test their production process and react to a potential fault.
  • CSE utilises supervisory control and data acquisition systems (SCADA), distributed control systems (DCS), programmable logic controllers (PLCs), motors, drives and plant transducers to deliver process control solutions. These systems are used mainly in the implementation of larger systems at the supervisory and control level.
  • The SCADA and DCS facilitate the control and adjustment functions at the Supervisory Level. They monitor various parameters, set production targets, store historical data, and set machine start and shutdown.
    • SCADA is a control system design that uses computers, networked data communications and graphical user interfaces for high-level process supervisory management. The operator’s interface is (monitoring and issuing of process commands) handled through SCADA.
    • DCS is a digital processor control system for a process of plant, where controller functions and field connection modules are distributed throughout the system.
  • At the Control Level, PLCs deliver automatic control functions based on sensor inputs. It allows the technician to program control functions of strategies to carry out automatic operations.
    • PLCs range from small modular devices with tens of inputs and outputs in a housing integral with the processor, to large rack-mounted modular devices with thousands of inputs and outputs, and which are often networked to other PLCs and SCADA systems.

Communication & security.

  • Designs, installs, and maintains two-way radio communications for both permanent and temporary locations. CSE offers turnkey packaged solutions, rental, and managed systems, that allow its users to communicate and monitor the safety of their employees.

Earnings growth supported by stable, high recurring revenue; attractive yield.

  • We project FY19F-21F earnings CAGR of 15% for CSE, driven by the expected increase in capex of oil majors, and riding on the smart nation initiatives in Singapore and increasing infrastructure projects in Australia.
  • About 90% of CSE’s total revenue is generally recurring in nature. This stable stream of revenue, coupled with its high customer retention rate and strong operating cashflows should support a consistent DPS of 2.75Scts p.a, or attractive yield of c.6%.

Benefitting from expected increase in capex of oil majors; margins expansion from undertaking more profitable projects.

  • With oil prices stabilizing above US$50/bbl in the past one year (breakeven for crude oil: c.US$40/bbl) and an optimistic outlook on the demand for oil in the long term, the collective capex of the four oil majors are expected to grow at a CAGR of c.11% from 2Q19 to FY21F. In addition, its focus on more profitable projects in U.S. and margins-accretive acquisition will lift earnings.

Riding on smart nation initiatives in Singapore; Increasing infrastructure projects in Australia.

See attached 25-page PDF initiating coverage report for complete investment thesis on CSE Global (SGX:544).

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2019-09-06
SGX Stock Analyst Report BUY INITIATE BUY 0.65 SAME 0.65