CSE Global - DBS Research 2020-05-06: Small Contracts Could Contract

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

CSE Global - Small Contracts Could Contract

  • CSE Global's 1Q20 new order intake increases to S$127m (+46.6% y-o-y).
  • Outstanding order book remains healthy at S$303m.
  • Expect a contraction in small O&G contracts.

CSE's 1Q20 new order intake continues to grow

  • CSE Global (SGX:544) reported that it secured new orders worth S$127.2m (+46.6% y-o-y) in 1Q20. The growth in new orders was broad-based across all industry segments:
    • Oil & Gas: S$87.8m (+34.8% y-o-y).
    • Infrastructure: S$25.5m (+48.5% y-o-y).
    • Mining & Minerals: S$13.9m (+211.0% y-o-y).
  • Outstanding order book at the end of 1Q20 remained healthy at S$302.7m (+66.9% y-o-y). The large increase was due to the large Oil & Gas contract win in October last year (S$103.7m).
    • Oil & Gas: S$173.1m (+233.1% y-o-y).
    • Infrastructure: S$114.1m (-9.8% y-o-y).
    • Mining & Minerals: S$15.5m (+433.6% y-o-y).

Our Thoughts: Less optimistic on its outlook

Oil price rout protracted longer than we expected.

  • We initially did not expect the slump in oil prices to worsen and to persist for such an extended period. The COVID-19 pandemic has shocked the demand for oil through the closure of businesses and international borders. This has been partially offset by OPEC+ cuts and oil well shut-ins.
  • The COVID-19 pandemic could weigh on Oil & Gas small contract renewals. While CSE Global reported healthy growth in its new order intake for its Oil & Gas business, we are less optimistic about its outlook in FY20. The protraction of the pandemic is likely to put off any new oil projects during this period and could weigh on CSE Global’s existing small contract renewals.

Expecting a decline in small Oil & Gas contract renewals; reiterate view of no new large contract wins.

  • We have cut our total new order intake assumption in FY20F from S$525m to S$476m (-9.3%).
    • FY20F Oil & Gas new order intake from S$370m to S$330m (-10.7%).
    • FY20F Infrastructure new order intake from S$100m to S$96m (-3.9%).
    • FY20F Mining & Minerals new order intake from S$55m to S$50m (-9.1%).
  • The Oil & Gas new order intake in 1Q20 now forms 26.7% of our FY20F forecast. We continue to believe that there will be no large Oil & Gas contract wins at current depressed oil prices and are shifting our view towards a mild contraction in its small Oil & Gas contract renewals.

Earnings and Recommendation

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-05-06
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