CSE Global - CGS-CIMB Research 2020-02-27: 4Q19 Systems Forge Ahead!

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CSE Global - 4Q19 Systems Forge Ahead!

  • CSE Global's FY19 core net profit of S$25.0m was ahead at 111%/109% of our/consensus FY19F estimates (S$22.5m/S$22.8m). Final DPS of 1.5Scts was announced.
  • Robust 4Q19 revenue and lower tax were the main drivers. FY19 order intake was significant (+52% y-o-y), lifting end-19 order book to S$307.1m.
  • Reiterate our ADD call and raise Target Price to S$0.77 now on FY21F EPS, still based on unchanged 13.5x P/E (+0.5 s.d. of its 5-year mean).

Revenues up on stable flow projects and new acquisitions

  • CSE Global (SGX:544)'s 4Q19 revenue of S$156.6m (+57.7% y-o-y) was ahead on healthier-than-expected oil and gas project execution. CSE Global said that flow O&G contracts were significant, while Volta’s additional work provided further boost.
  • All in, FY19 revenue of S$451.8m (+21% y-o-y) was driven by O&G revenue which grew 18.7% y-o-y (S$294.1m); infrastructure revenue rose 4.7% y-o-y (S$115.3m) and M&M revenue was up by 170% y-o-y (S$42.4m).

Core net profit up 10.6% y-o-y on higher GP and lower tax

  • CSE Global's FY19 core net profit (based on continuing operations and excluding certain non-recurring severance, M&A costs and forex gains/losses) rose c.10% y-o-y to S$25.0m with net profit margin at 5.5%. The uplift came from FY19 gross profit that grew 19.4% y-o-y and lower-than-expected tax expense (effective tax rate of 20.4% vs. 25.7% our forecast).

Stellar order intake

  • FY19 was a good year for CSE Global, with order wins rising 52% y-o-y. FY19 flow contracts grew +48% y-o-y, as activity levels picked up in all segments and on Volta acquisition; CSE Global also won some oil and gas greenfield projects (S$103m in 4Q19).
  • All in, this led to an end-19 order backlog of S$307.3m, the highest order backlog in the past five years.

Raise FY20-21F forecasts

  • We raise our FY20-21F revenue forecasts by 5.0-5.9% given the high order backlog and as we expect flow contracts to grow sustainably. We also raise our finance costs as we think they were too low previously and lower our tax expense (in lieu of the lower effective tax) assumptions.
  • Overall, our FY20-21F EPS forecasts increase by 4.3-5.4%. We also introduce FY22F EPS which features net profit growth of 1.3%.

Reiterate ADD; still our preferred small-cap pick

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-27
SGX Stock Analyst Report ADD MAINTAIN ADD 0.77 UP 0.730