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

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.

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.

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.

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.

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

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