CSE Global - CGS-CIMB Research 2020-08-06: 2Q20 Systems Still Solid

CSE GLOBAL LTD (SGX:544)

CSE Global - 2Q20 Systems Still Solid

CSE Global’s 1H20 core net profit of S$12.0m was slightly ahead at c.53.4% of our FY20F estimate (S$22.4m) but in line with consensus at 50.4% (S$23.8m).
CSE Global remains confident of achieving a FY20F net profit that is at a similar level as FY19’s (reported S$24.1m). We raise our FY20-22F EPS by c.10%.
Reiterate ADD with a higher Target Price of S$0.60, still based on 12x CY21F P/E (close to 2014-19 average of 11.7x) on stronger-than-expected prospects.

CSE Global (SGX:544)’s 1HQ20 revenue of S$255.6m (up 39.1% y-o-y) was ahead on higher flow revenues and contributions from CSE’s new acquisitions, especially in the oil and gas (O&G) and mining and minerals (M&M) segments which saw 1H20 revenue increase by 47.9% and 67.1% y-o-y respectively.
1H20 GPM was strong at 30.3% (vs. 1H19’s 27.6%) due to more maintenance projects (better product mix), taking 1H20 GP to S$77m (+52.5% y-o-y). Higher revenue and GPMs led to 1H20 core net profit of S$12.0m (up c.10% y-o-y).
An interim dividend of 1.25Scts was announced.

CSE Global won S$114.9m worth of orders in 2Q20. While the O&G segment saw orders decline (-39% q-o-q/-10.6% y-o-y), the infrastructure and M&M orders offset the decline in O&G orders in 2Q.
1H20 order intake was S$242.1m while end-June order book was S$293.8m (vs.1H19: S$187.6m).

While CSE Global said COVID-19 affected the pace of sales efforts, there was no material collectability issue. Despite the lower crude oil price environment, CSE said there were no material project/order book cancellations.
CSE Global remains confident of delivering a FY20F net profit that is at a similar level to FY19’s (reported S$24.1m) and that it expects to continue to receive new orders in 2H especially from the infrastructure and M&M segments. As such, we lift our FY20-22F EPS forecasts by c.10% as we reflect higher contract intake assumptions of S$440m-480m (vs. S$360m-460m previously), better GPMs and lower interest costs.

We reiterate ADD on CSE Global with a higher target price of S$0.60, still based on 12x CY21F P/E, close to the 5-year (2014-2019) average of 11.7x.
We like CSE Global’s strong order backlog that could provide a cushion in these tough times, and its continued diversification to include more non-oil and gas contracts. We also think it can maintain its dividend yield as long as cashflow generation is intact.
See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
Potential re-rating catalysts are swifter project execution and higher-than-expected order wins (thus revenues).
Downside risks are lower-than-expected order wins and potential cuts in DPS.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-06

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