CSE Global - RHB Invest 2020-06-04: Strong 1Q20 Results; Maintain BUY

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CSE Global - Strong 1Q20 Results; Maintain BUY

  • Maintain BUY and P/E-based Target Price of SGD0.54, 10% upside and c.6% yield.
  • CSE Global registered 56% and 23.1% revenue and PATMI growth y-o-y in 1Q20 to SGD131.8m and SGD7.1m. Growth was mainly due to the strong revenue flow from the Americas and Asia-Pacific region, as well as contribution from the Volta and RCS acquisitions.
  • We remain cautiously optimistic on the company’ prospects but expect COVID-19 and low oil prices to have a negative impact to its business in 2Q20.

CSE Global's 1Q20 results in line.

  • CSE Global (SGX:544)'s 1Q20 revenue and net profit accounted for 29% and 31% of our full year forecast.
  • As suggested in the previous report CSE Global - RHB Invest 2020-04-08: Temporary Disruption; Still BUY, we expected 1Q20 results to be relatively decent as the major disruption by COVID-19 in the key countries where CSE operates only happened in March, coupled with the further decline in oil prices.
  • Strong operating cash flow in 1Q20 of SGD17.3m also enabled CSE Global to pare down its debt quicker, and lower its net debt position from SGD44.5m to SGD32.7m (net gearing: 0.18x). The net debt position arose due to the leveraging of borrowings to fund the acquisition of Volta in Sep 2019, which proved to be accretive.
  • Order intake increased 46.6% y-o-y to SGD127.2m as a result of growth across all business segments – oil & gas, Infrastructure, and mining & minerals. Orderbook was up 66.9% y-o-y to SGD302.7m as at end-1Q20 from SGD181.4m in 1Q19. The oil & gas segment in the Americas locked in c.SGD100-120m more backlog in 1Q20 due to the two new contracts secured in Oct 2019 worth c.SGD103.7m.

FY20 to meet expectations.

  • With a robust orderbook, and resilient business flow, we think FY20 performance will likely meet our lowered expectations. Most of CSE Global’s businesses are deemed as essential services and were operating during the “Circuit Breaker” period. However, travel restrictions, coupled with the awfully low oil prices, had somewhat impacted its business in April and May – such as lower profit margin due to lower pricing of orders and fewer orders.
  • Nevertheless, as countries move towards reopening their respective economies, we believe the worst could be over.

Growth strategy intact.

  • CSE Global’s growth has all along been built upon successful acquisitions – we witnessed it with the recent acquisitions of RCS Telecommunications (RCS) and Volta in its FY19 and 1Q20 results. We believe the company will continue to make accretive acquisitions, focusing on the oil & gas and infrastructure segments in the key countries – Americas, Australia/New Zealand, and Europe once the pandemic abates.

Maintain BUY.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2020-06-04
SGX Stock Analyst Report BUY MAINTAIN BUY 0.540 SAME 0.540