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

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.

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.

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.

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.

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.

We expect q-o-q earnings growth in 2Q20 to be somewhat tepid. With its robust orderbook of SGD302.7m and the earnings-accretive acquisitions CSE Global made last year, we continue to believe its FY20F dividend will be sustainable – and maintain our projections.
See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
Our Target Price of S$0.54 implies 10.5x FY21F P/E. See also previous report: CSE Global - RHB Invest 2020-06-04: Strong 1Q20 Results; Maintain BUY.

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