CSE Global - CGS-CIMB Research 2019-12-09: Systems Still Up And Running

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

CSE Global - Systems Still Up And Running

  • We are still excited about CSE Global’s forward earnings growth potential, especially given its padded order backlog .
  • Its 2019 acquisitions have either broadened CSE's regional reach and/or been earnings accretive, despite bringing CSE to a net debt position.
  • The stock trades at an FY20F P/E of 9.9x, below its 5-year average of 13.5x. We see core EPS growth of c.21% in FY20F. Maintain ADD.

9M19 showed good growth and acquisitions

  • CSE GLOBAL LTD (SGX:544) has registered a good year so far, with 9M19 revenue and core net profit growing 7.7% and 16% y-o-y, respectively.
  • The oil and gas (O&G) and mining & minerals (M&M) segments drove revenue growth, with the former reporting a 9M19 revenue growth of 4.1% y-o-y led by increased “flow projects” in the year, and the latter seeing 9M19 revenue growth of more than 100% following CSE’s acquisition of RCS Telecommunications Pty Ltd (an Australian communications company) in Mar 19. The acquisition also led to a spillover to order intake for the M&M segment, which had seen low growth in the past few years.

Padded order book

  • Order wins have been the bright spot for CSE. In 9M19, the order intake was S$348.9m (vs. 9M18’s S$236.1m).
  • It also announced further contract wins of S$103m in Oct 19, which will take 10M19 order intake to S$452.5m; ahead of the order intake for the full-year FY18 (c.S$381m).
  • We think CSE could end FY19F with an order backlog of at least S$300m (vs end-3Q19: S$232.6m), the highest order backlog in the past five years.

2020 outlook

  • We pencil in revenue growth of c.28% for FY20F as CSE executes the high order backlog of FY19F; coupled with net profit margin of 5.2%, we see net profit growing by c.21% in FY20F.

ADD call maintained with Target Price of S$0.73

  • CSE has been our preferred small-cap O&G pick in part due to:
    1. its forward earnings growth potential, and
    2. its secure dividend payout.
  • 2019’s acquisitions have led to CSE being in a net debt position (c.0.27x) by end-Sep 19. Nevertheless, we look favourably on the acquisitions as they are earnings-accretive and could lead to cross-selling synergies for CSE’s Americas business.
  • Our Target Price of S$0.73 is based on 13.5x FY20F P/E (+0.5 s.d. of its 5-year average mean due to the company’s better footing from FY19F onwards).
  • See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
  • 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.

LIM Siew Khee CGS-CIMB Research | https://www.cgs-cimb.com 2019-12-09
SGX Stock Analyst Report ADD MAINTAIN ADD 0.730 SAME 0.730