CSE Global - RHB Invest 2020-07-17: Strong Backer Brings More Stability; Maintain BUY

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

CSE Global - Strong Backer Brings More Stability; Maintain BUY

  • Temasek is now CSE Global’s substantial shareholder, owning 25.03% after acquiring the stake from Serba Dinamik (SDH MK) at SGD0.45 per share last week. This marks a positive transition for the company, and we remain upbeat on the stock.
  • Maintain BUY, unchanged P/E-based Target Price of SGD0.54, 17% upside with 6% FY20F yield.

Overhang has been removed.

  • Serba Dinamik’s investment in CSE Global (SGX:544) in 2018 led to investor concerns over CSE’s direction ahead. However, expectations of a collaboration between the two companies were not realised. Through the married deal with Serba Dinamik (completed on 7 Jul), Temasek subsidiary Heliconia Capital Management has emerged as the new substantial shareholder. See CSE Global Announcements.
  • We deem this news as positive for the medium term, premised on Temasik’s solid credentials as well as what the Singaporean Government’s investment arm can offer – CSE Global may be able to tap on the former’s network, which may also facilitate M&A deals.

Oil prices are stabilising, but…

  • On 7 Jul, the US Energy Information Administration (EIA) lifted its outlook for crude oil prices by USD4.00/bbl for 2H20F, and by USD2.00/bbl for 2021F. This is based on expectations of growing demand – after COVID-19-related lockdowns are lifted – as well as OPEC+ production cuts. If oil prices stabilise, the flow of recurring business should be more stable in 2H20.
  • In our 8 Apr report CSE Global - RHB Invest 2020-04-08: Temporary Disruption; Still BUY, we wrote that the pandemic may be subdued in 2H20. However, the situation is still very fluid. At present, daily new COVID-19 cases remain high, potential second and third waves of infection are surfacing, and some places are heading for or have already implemented a second lockdown. If the situation persists, demand for oil will remain low as road and air traffic will still be depressed, until a vaccine is found.
  • The oil & gas segment accounts for 57% of CSE Global’s 1Q20 orderbook.

Some impact in 2Q20.

  • CSE Global expects 2Q20 numbers to be impacted, due to lockdown measures and low oil prices. We expect to see a decline in revenue recognition on slower project execution, a slower flow of orders, and margin pressure as customers turn cautious about their budgets. The situation may be prolonged, as the current environment remains undesirable.

Growth strategy intact.

  • Despite the pandemic, CSE Global’s acquisition strategy remains intact – and such exercises may be carried out at a slower pace. We are likely to see acquisitions in the oil & gas or infrastructure space in either the US, Europe, or Australia/New Zealand.
  • With a positive cash flow and a net gearing of only 0.18x, we do not see any issue regarding funding for growth. Moreover, CSE Global now has Temasek as a substantial shareholder, which may support the group’s future funding needs for acquisitions.

BUY CSE Global on cheap valuation.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2020-07-17
SGX Stock Analyst Report BUY MAINTAIN BUY 0.540 SAME 0.540