CSE Global - RHB Invest 2020-02-28: Record Order Intake; Maintain BUY

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CSE GLOBAL LTD (SGX:544)

CSE Global - Record Order Intake; Maintain BUY

• Maintain BUY with new DCF-backed Target Price of SGD0.73 from SGD0.69, 33% upside plus 5% yield.
• CSE Global (SGX:544)'s FY19 net profit was SGD24.1m (+19.6% y-o-y) on the back of higher revenue (FY19: SGD451.2m, FY18: SGD373.5m) as a result of improved performance in the group’s operations, and contribution from the Volta acquisitions.
• CSE Global has a record order intake of SGD578.8m (+52.1% y-o-y) in FY19, giving it a robust orderbook of SGD307m (+70.5% y-o-y) into FY20F.

4Q19 net profit surged 60.1% YoY to SGD8.1m.

• CSE Global reported revenue growth of 57.7% y-o-y to SGD156.6m in 4Q19 on improvements in all the business segments (oil & gas, infrastructure, and mining & mineral) across all regions. In line with revenue growth, gross profit in 4Q19 rose 47.1% y-o-y to SGD44m.
• Due to a higher contribution of lower margin infrastructure projects, 4Q19 gross margin fell by 2.1ppts to 28.1%.
• Due to business expansion, operating expenses increased by 38.6% to SGD30.6m, which led to operating profit of SGD10m (+27.2% y-o-y) and PATMI of SGD8.1m.

FY19 net profit rose 19.6% YoY to SGD24.1m.

• Driven by higher contribution from the oil & gas and infrastructure segments in the US and Asia-Pacific region, FY19 revenue grew by 21% y-o-y to SGD451.8m. With steady gross and net margins of 27.4% and 5.3%, gross and net profits rose by 19.4% and 19.6% y-o-y to SGD123.7m and SGD24.1m respectively, in line with our forecast.
• Management has guided for gross and net profit margins to be 27-28% and 5-6% as more sustainable levels going forward. It intends to keep DPS at 2.75 SG cents unchanged.

Robust orderbook and business expansion to grow bottomline.

• FY19 orderbook was SGD578.8m (+52.1% y-o-y), led by growth in flow orders, the inclusion of Volta’s orders, as well as two large projects secured for the oil & gas segment. This brought backlog orders to SGD307.3m.
• We expect larger size contract wins and a steady stream of flow orders in the near-term as the order intake momentum remained high.
• In addition to organic growth, we think that CSE Global is likely to continue its expansion plan and see its footprint widen in the UK after the acquisition of Chatterbox Ltd last financial year.

We raise our Target Price to SGD0.73, implying 12.7x FY20F P/E.

• This counter is currently trading at 9.5x FY20F P/E, with an attractive yield of 5%.
• We lower our FY20-22 earnings forecasts between 1% and 3% to account for higher revenue offset by higher expenses.
• See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.

Jarick Seet RHB Securities Research | Singapore Research RHB Invest | https://www.rhbinvest.com.sg/ 2020-02-28

SGX Stock Analyst Report BUY MAINTAIN BUY 0.73 UP 0.690