CSE Global - DBS Research 2020-08-06: Resilient Against Headwinds; A Brighter Outlook In 2H20

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CSE Global - Resilient Against Headwinds; A Brighter Outlook In 2h20

  • CSE Global's 1H20 net profit increased 53% y-o-y to S$15.1m.
  • 1H20 new order intake rose 25.7% y-o-y to S$242.1m.
  • Oil & Gas segment maintained margins despite oil price rout in 1H20.

CSE Global's 1H20 Results Review

  • CSE Global (SGX:544)'s 1H20 revenue of S$255.6m (+39.1% y-o-y). The higher revenue was mainly attributable to stronger performance in Americas and the Asia Pacific (Infrastructure and Mining & Minerals segment) regions.
    • Oil & Gas: S$179.0m (+45.4% y-o-y). Revenue surged due to higher time and material, as well as revenue contribution from its large O&G contract (S$103.7m) that was secured in October 2019, and Volta, which was acquired in late August 2019.
    • Infrastructure: S$50.2m (+6.8% y-o-y).
    • Mining & Mineral: S$26.4m (+67.1% y-o-y). The increase was mainly due to revenue contribution from RCS Telecommunications, which was acquired in March 2019.
  • CSE Global's 1H20 EBIT of S$19.5m (+38.1% y-o-y). 1H20 EBIT margin declined marginally by 0.1ppts y-o-y to 7.6%.
    • Oil & Gas: S$12.1m (+45.3% y-o-y). EBIT margins remained relatively flat at 6.8% (vs 6.7% in 1H19).
    • Infrastructure: S$5.9m (+1.9% y-o-y). EBIT margins declined slightly to 11.8% (vs 12.3% in 1H19).
    • Mining & Mineral: S$1.6m. EBIT margins increased to 6.1% (vs 0.6% in 1H19).
  • 1H20 net profit of S$15.1m (+53.4% y-o-y). Net profit margin increased slightly by 0.3ppts to 5.9%, from 5.6% in 1H19 mainly due to a FX gain of S$3.1m (vs S$0.8m in 1H19).
  • CSE Global's 1H20 new order book grew 25.7% y-o-y to S$242.1m.
    • Oil & Gas: S$141.6m (+13.0% y-o-y).
    • Infrastructure: S$63.7m (+29.9% y-o-y).
    • Mining and Mineral: S$36.8m (+101.2% y-o-y).
  • Interim dividend unchanged at 1.25Scts per share. This represents 1H20 payout ratio of c.42%.

Our Thoughts

Revenue in line; margins above our expectations.

  • CSE Global's 1H20 revenue and net profit formed 48.9% and 60.0% of our FY20F estimates respectively. 1H20 net profit exceeded our expectations as net profit margins were higher than our FY20F forecast of 5.6%. This was largely due to higher EBIT margins from its Oil & Gas business segment as well as Mining and Minerals.

Improvement on the outlook on its Oil & Gas business segment.

  • Even though new orders for its Oil & Gas business had declined 10.6% y-o-y and 38.7% q-o-q, 1H20 EBIT margins had increased slightly by 0.1ppts to 6.8%, which we initially thought would decline. Furthermore, with oil prices stabilising at c.US$40/bbl as economies gradually lift lockdown measures towards the end of 1H20, and accommodation from OPEC+, we are more optimistic on its outlook than we were in 1H20.

Mining & Mineral’s profitability is beginning to grow with scale.

  • CSE Global’s Mining & Mineral business recorded an EBIT of S$1.6m, from a negligible contribution of S$0.1m in 1H19, and S$0.6m in FY19. We believe the profitability improved as a result of an increase in its topline to S$26.4m in 1H20, from S$15.8m in 1H19. Going forward, we believe this business segment will continue to grow, accounting for c.9%/11% of EBIT in FY20F/21F, up from 1.9% in FY19.

Potential opportunities with new strategic investor, Heliconia Capital Management.

  • Heliconia Capital Management, an investment firm and wholly owned subsidiary of Temasek, acquired 25.03% of CSE Global’s shares through a married deal with Serba Dinamik. Heliconia focuses on growth-oriented companies and with its Chairman and CEO sitting on CSE Global’s Board of Directors, there is potential for CSE Global to leverage on Heliconia’s network and expertise to support its growth plans.

CSE Global - Earnings and Recommendation

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-08-06
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