CSE Global - CGS-CIMB Research 2020-03-25: COVID-19 & Low Crude Oil Prices; Priced In

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

CSE Global - COVID-19 & Low Crude Oil Prices; Priced In

  • We think value in CSE Global (SGX:544) is emerging as it now trades below its 2014-19 average 12M forward mean, and closer to trough of 7.9x P/E in Dec 2018.
  • Lower crude oil prices and capped activity levels warrant conservatism in our forecasts. But the c.36% share price plunge YTD has likely priced this in. We think the risk-reward ratio is favourable at current levels.
  • Reiterate ADD, with a lower Target Price of S$0.45, now based on 11x CY21F EPS.

Back at 2014 crude oil crisis valuations

  • CSE Global currently trades at c.8.6x FY21F P/E, below its 2014-2019 average 12M forward mean of 11.9x P/E. In a bear scenario, it could trade at S$0.31; close to its trough valuation of 7.9x in Dec 2018 when Singapore stock market sentiment was weak on fears that the US-China trade war would blow up, in our view.
  • As CSE Global Share Price has plunged c.36% YTD, we think the market has priced in the potential shrinkage in FY20F EPS. We foresee market sentiment for CSE Global improving when its operations normalise towards the later part of FY20F.

Order book stronger now than in 2008; and even 2015

  • We liken CSE Global’s current situation to the last crude oil price crisis (in 2014-2016) instead of the Global Financial Crisis (GFC) in 2009 as post several acquisitions in 2016-2019, CSE Global now sees more onshore work (shale) and Australian communications businesses -- both less cyclical than offshore oil and gas projects, in our view.
  • The other silver lining is a higher end-FY19 order backlog of S$307.9m vs. end-FY08 order backlog of S$212.7m (non-healthcare). This end-FY19 order backlog is also higher vs. its end-FY15 order book of S$192m, putting it on a more solid footing, in our view.

Lower FY20-22F EPS on capex cuts and delayed project executions

  • Several oil/gas players have begun guiding for lower capex/opex plans, at least for 2020F. Covid-19 resulted in various levels of movement restrictions implemented in several countries, including CSE Global’s major markets, the US, Australia, and Singapore.
  • In 2014-2016, CSE Global’s order wins fell c.20% y-o-y, even dipping to S$60m in one quarter. The current movement controls could result in slower project execution on CSE Global's order book.
  • We cut FY20-22F EPS due to lower order expectations of S$280m-420m for FY20-22F (vs c.S$480m-530m previously).

Value emerging; reiterate ADD

  • We reiterate ADD on CSE Global with a lower target price of S$0.45, now based on 11x CY21F EPS, close to 5-year (2014-2019) average of 11.9x; this implies a favourable risk-reward of at least a c.28% upside vs. a downside of 7%, or S$0.32/share (assuming we apply FY19’s trough of 7.9x on FY21F EPS), if sentiment worsens in the near term. Its c.8% dividend yield is an added bonus.
  • See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
  • Potential re-rating catalysts are swifter project execution and higher order wins (thus potential revenues).
  • Downside risks are lower order wins and potential cut in DPS.
  • See attached PDF report for chart of selected CSE Global's significant historical milestones vs its share price movements.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-25
SGX Stock Analyst Report ADD MAINTAIN ADD 0.45 DOWN 0.770