CSE Global - CGS-CIMB Research 2019-11-07: 3QFY19 Systems Upgrade

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

CSE Global - 3QFY19 Systems Upgrade

  • CSE Global’s 9M19 core net profit of S$16.9m accounted for about 75% of both our and Bloomberg consensus' FY19F estimates of S$22.5m.
  • 9M19 order intake was S$348.8m and with greenfield order wins of S$103m in Oct 19, 10M19 order intake is already at S$451.8m (+18% y-o-y).
  • Maintain our ADD call and raise Target Price to S$0.73 on FY21F EPS still based on unchanged 13.5x P/E (near 5-year mean of 13.6x).

Revenues up on stable order flows and new acquisitions

  • CSE GLOBAL LTD (SGX:544)'s 3Q19 revenue of S$111.5m (+21.9% y-o-y) grew on
    1. higher oil and gas revenues on ‘flow contract’ executions and a first-month revenue contribution from Volta (acquired Sep 19);
    2. higher infrastructure revenue of S$28.9m (+4.7% y-o-y); and
    3. stable mining and mineral (M&M) revenue of S$11.2m (+89.8% y-o-y), a positive spill-over effect of CSE Global’s RSC acquisition (Mar 19).
  • Consequently, 9M19 revenue grew to S$295.2m (+7.7% y-o-y). See CSE Global Announcements.

9M19 core net profit grows 16% y-o-y

  • CSE Global’s 3Q19 gross profit margin (GPM) was 25.9% (3M18: c.27%) on lower-margin start-up projects. Coupled with higher interest cost, 3Q19 core net profit margin was lower at 4.9% (3Q18: 5.9%) taking 3Q19 core net profit (based on continuing operations and excluding non-recurring severance, M&A costs and forex gains/losses) flat to S$5.4m.
  • CSE Global’s 9M19 core net profit grew to S$16.9m (+16% y-o-y) with net profit margin stabilising at 5.7% (vs. 9M18 core net profit margin of 5.3%).

Stellar order intake and FY19F order book incoming

  • CSE Global's 3Q19 order wins rose to S$156.1m (2Q19: S$105.9m) on higher oil and gas flow contracts (S$70.6m), Volta’s order book (S$46m); M&M division wins of S$14m and infrastructure wins of S$25.1m.
  • In Oct 19, CSE Global secured S$103m worth of contracts, and assuming further order intake of S$100m and revenue recognition of S$100m in 4Q19F, CSE Global could end FY19F with an order backlog of at least c.S$300m (end-3Q19: S$232.6m), the highest order backlog in the past five years.
  • We raise our FY20-21F revenue by 7.2-8% and EPS by 4.5-5.4% with the inclusion of such large projects.

Moving into net debt in search of growth

  • As at end-Sep 19 CSE Global was in a net debt position (0.27x), post the Volta M&A. Nevertheless, we still like the acquisition as it is earnings-accretive and could lead to cross-selling synergies for CSE Global’s Americas business.
  • Management is maintaining its 1.5Scts DPS for 4Q19F. See CSE Global Dividend History.

Maintain ADD

  • We are still excited for CSE Global’s forward earnings growth potential, especially given its padded order backlog. We raise our target price to S$0.73, based on an unchanged 13.5x P/E, now on CY21F EPS. See CSE Global Share Price; CSE Global Target Price.
  • Re-rating catalysts/downside risks include higher-/lower-than-expected order wins and GP margins.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2019-11-07
SGX Stock Analyst Report ADD MAINTAIN ADD 0.73 UP 0.680