CSE Global - CGS-CIMB Research 2020-02-04: Bolstered Backlog!

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CSE GLOBAL LTD (SGX:544)

CSE Global - Bolstered Backlog!

• CSE GLOBAL (SGX:544) today revealed that it achieved c.S$230m new orders in 4Q19, taking its FY19 win to S$580m (+50% y-o-y).
• While within our expectations, we are still excited with this as we see it as confirmation its end-FY19 order book exceeded S$300m (2018: S$181m).
• We expect CSE to report FY19F net profit of S$22.5m (+9% y-o-y). We keep our forecasts, call and Target Price. Reiterate CSE as our favourite small cap.

S$230m order intake in 4Q19, padding order backlog

• Order wins in 4Q19 include oil & gas greenfield projects worth a total of US$74.7m (S$103.7m) announced in Oct 2019, implying brownfield projects worth c.S$120m.
• According to CSE, of the S$230m new orders won, S$190m were by its oil & gas division, S$25m by its infrastructure division, and S$16m by its mining division.
• FY19 order intake rose 50% y-o-y to S$580m (vs. c.S$384m in 2018), fuelled mainly by CSE’s oil & gas (+c.100% y-o-y) and mining (c.+200% y-o-y) divisions.
• We estimate that CSE could end FY19F with an order backlog of at least S$300m (end-3Q19: S$232.6m), its highest order backlog in five years.

4Q19F preview

• CSE will likely report its 4Q19 results at end-Feb. We estimate 4Q19F revenue of c.S$111m on the back of higher project execution, and core net profit of c.S$5.6m on net profit margin of c.5%.
• We project FY19F revenue of S$407m (c.+8% y-o-y) and core net profit of S$22.5m (c.+9% y-o-y).
• Final DPS of 1.5Scts is also in the bag, in our view.
• See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.

Reiterate ADD

• CSE has been our preferred small cap O&G pick in part due to its
  1. earnings growth potential,
  2. sustained dividend; and
  3. padded order backlog.
• As at end-Sep 2019, CSE was in a net debt position due to acquisitions. 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 CY20F P/E (+0.5 s.d. of its 5-year mean due to the company’s better footing from FY19F onwards).
• 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 2020-02-04

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