CSE Global - DBS Research 2020-02-28: Strong Order Continues

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

CSE Global - Strong Order Continues

  • CSE Global's FY19 results slightly above; strong top-line growth.
  • Oil & Gas drove EBIT as sales and margins increased.
  • Attractive dividend yield of 5.1%.
  • Maintain BUY with a slightly higher Target Price of S$0.70; raised FY20F/21F revenue, lowered net profit margins.

FY2019 results were slightly above expectations

  • CSE Global (SGX:544)'s FY2019 earnings increased to S$23.7m (+21.7% y-o-y), slightly above our expected S$22.2m. Earnings growth was driven mainly by an increase in revenue and EBIT margin expansion from the Oil & Gas business segment in America and Volta’s contribution.
    • Oil & Gas revenue grew to S$294.1m (+18.7% y-o-y) on the back of an increase in flow orders and Volta’s contribution.
    • We estimate Volta to have contributed c.S$25m to FY2019’s revenue.
    • Oil & Gas EBIT margins expanded 7ppts from 5.6% in FY2018 to 6.3% in FY2019 on the cessation of its loss-making Oil & Gas projects in EMEA.

4Q19 results indicated strong top-line growth across all three business segments.

  • CSE Global's 4Q19 revenue grew by 57.7% y-o-y to S$156.6m. On an EBIT level, Infrastructure and Mining and Minerals remained largely flat y-o-y while Oil & Gas increased 77.7% to S$6.3m on increased sales and higher margins.
  • 4Q19 EBIT increased 37.9% y-o y to S$10.7m.
    • Oil & Gas revenue in 4Q19 increased to S$101.8m (+61.7% y-o-y) on the back of its growth in its flow orders and Volta’s contribution.
    • Infrastructure revenue in 4Q19 increased to S$39.4m (+20.0% y-o-y) as its Australian communications business grew by c.39% y-o-y, mainly due to its acquisition of RCS Telecommunications in March 2019.
    • Mining and Mineral revenue increased to S$15.4m (+338.4% y-o-y) on an increase in mining operations served in Australia.

New orders surged to S$578.8m (+52.1% y-o-y) in FY2019 and on two large contracts and higher flow orders

  • CSE Global secured two large Oil & Gas contracts in Americas worth S$103.7m in 4Q19. These projects are expected to contribute positively to the company’s FY2020F earnings and beyond.
  • Outstanding order book grew to S$307.3m (+70.5% y-o-y) mainly due to the two large Oil & Gas contracts.
  • Flow revenue increased to S$426.1m (+23.6% y-o-y), representing c.95% or its total revenue in FY2019.

Proposed final dividend per share (DPS) of 1.5 Scts, same as FY2018.

  • This brings FY2019 total dividend per share to 2.75
  • FY2019 dividend yield of 5.1%.
  • FY2019 dividend payout of 58.1%.

Slightly Positive Outlook

COVID-19 outbreak likely to weigh on clinching new large contracts; no impact on flow revenue.

  • The COVID-19 outbreak has weighed on oil price, causing it to plunge by more than c.20% from its peak in January 2020.
  • We are not expecting any new large order contracts in the near term as upstream players in the US halt their exploration & production (E&P) projects amidst the weak oil price.
  • We believe that there will either be minimal or no impact at all as its flow revenue, which has formed a stable base from its existing installed customer base, amounted to c.95% of its revenue in FY2019.

Two large Oil & Gas contracts, Volta, and its flow revenue to form a “base-case minimum” in FY2020F.

  • Amidst the temporary economic slowdown due to COVID-19, we are expecting CSE Global’s large Oil & Gas contract, Volta’s contribution, and its flow revenue to form a “base-case minimum” in FY2020F. We believe that these projects are based on a longer-term outlook and are likely to last through FY2020F.

Maintaining BUY with a slightly lower Target Price of S$0.70.

Tweaked earnings on the back of higher interest expense and lower EBIT margins.

  • While we revised FY2020F/21F’s revenue upwards due to stronger top line from its Infrastructure and Mining & Mineral’s business, we have lowered EBIT margins on the back of lower EBIT margins from its Infrastructure business segment in FY2019. In addition, we raised interest expense slightly on its higher-than-anticipated interest cost.
  • Overall, earnings for FY2020F tweaked up 1%, lowered 2% for FY2021F.
  • Our Target Price is raised slightly to S$0.70, pegged to 12.0x FY2020F forward PE, which at the 5-year average. CSE Global is currently trading at 9.4x FY2020F forward PE and an attractive dividend yield of 5.1%.
  • See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-02-28
SGX Stock Analyst Report BUY MAINTAIN BUY 0.70 UP 0.690