CSE Global - CGS-CIMB Research 2019-10-29: Projects Incoming!

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

CSE Global - Projects Incoming!

  • CSE GLOBAL LTD (SGX:544) announced that it has secured new oil and gas contracts worth a cumulative US$74.7m (S$103.7m). See CSE Global Announcements.
  • The new wins area pleasant surprise; coupled with higher ‘flow contracts’ in 2H19F, this could fuel end-FY19F order book to beyond S$300m, in our view.
  • We keep our forecasts, call and Target Price. CSE remains one of our favourite small-cap stocks due to its steady EPS growth and dividends.

Two new projectsfrom the Americas totaling c.S$100m

  • The two new oil and gas contracts involve a wide range of projects to support the production of subsea wells, operation of subsea gas trunk lines and other subsea infrastructure.
  • According to CSE's Announcements, these projects are expected to contribute positively to its financial performance from FY20F and beyond; as such, we believe these projects could be executed over the next 2-3 years.
  • Assuming net profit margin of 5.5% (achieved in 1H19), these projects would yield S$5m to CSE’s bottomline when completed.

Bolstering its order book!

  • The wins take cumulative reported FY19 order wins to S$269m (order intake as at 1H19 was S$193.9m) and assuming further intake of S$200m in 2H19F (estimated flow projects) and revenue recognition of c.S$200m in 2H19F, CSE could end FY19F with order backlog of at least c.S$300m (vs. end-2Q19 order backlog of S$188m).
  • If so, this could also be the highest order backlog CSE has reported in the past five years.

3Q19F preview

  • CSE will report its 3Q19 results on 6 Nov, and host an analyst briefing on 7 Nov.
  • We estimate 3Q19F revenue at S$105.3m, on higher project execution in 3Q19F, and expect core net profit of c.S$5.9m and net profit margin of 5.5%.
  • We expect 9M19F revenue at S$292.9m and core net profit at S$15.5m.

Maintain ADD

  • CSE has been our preferred small-cap O&G pick due to its
    1. sustained earnings growth,
    2. healthy balance sheet, and
    3. secure dividend payout (see CSE Global Dividend History).
    These large greenfield projects further solidify its appeal.
  • We maintain our forecasts pending its upcoming results.
  • Target price is still based on 13.5x FY20F P/E (+0.5 s.d.of its 5-year average mean due to a better footing from FY19F onwards). (See CSE Global Share Price; CSE Global Target Price)
  • Stronger-than-expected order wins and GPMs are potential re-rating catalysts.
  • Lower-than-expected order wins and GPMs are key downside risks to our ADD call.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2019-10-29
SGX Stock Analyst Report ADD MAINTAIN ADD 0.680 SAME 0.680