CSE Global - DBS Research 2020-10-23: Interrupted, But Not Out

CSE GLOBAL LTD (SGX:544)

CSE Global - Interrupted, But Not Out

CSE Global secured S$91m worth of new orders in 3Q20, down 41.7% y-o-y.
3Q20’s order backlog at S$267m, +14.8% y-o-y.
Revised FY20F/21F earnings by -16%/-9% on weaker-than-anticipated Oil & Gas new order intake.

CSE Global (SGX:544) secured S$91.0m worth of new orders in 3Q20, -41.7% y-o-y. 9M20 overall new order intake formed 73.6% of our FY20F new order intake assumption, which was below our expectations. This was mainly due to weakness in the Oil & Gas segment.
Lower new order intake was mainly due to lower new order intake at its Oil & Gas segment (-58.6% y-o-y) amid the weak operating environment in the oil & gas industry.
3Q19’s new order intake was also exceptionally higher due to a one-time consolidation of the new order intake from its acquisition of Volta, which we estimate to be S$20-25m.
3Q20 order backlog at S$267.0m, +14.8% y-o-y. Order backlog increased due to its Oil & Gas (+24.3% y-o-y) and Mining & Minerals segment (+93.6% y-o-y).
Based on the new order intake and order backlog, we estimate CSE Global’s 3Q20 revenue to be S$118m, +5.7% y-o-y. Our estimated 9M20 revenue formed 71.9% of our initial FY20F revenue.

As governments gradually eased restrictions, allowing consumers to spend and businesses to resume, oil demand bottomed out in May and has been increasing since. In addition, supply rationalisation from oil producers and OPEC+’s accommodation have quickened the oil market’s demand-supply rebalance. The oil market tipped into “supply shortage” territory from June and has been trading in a narrow range near US$40/bbl.

We are reducing CSE Global's FY20F/21F revenue by 10.3%/7.4% due to weaker-than-anticipated new order intake in its Oil & Gas segment in 3Q20. We are also lowering our FY20F/21F EBIT margins to 7.2%/7.5% from 7.6%/7.6% to reflect the weaker-than-anticipated operating environment.
Maintain BUY on CSE Global with a lower Target Price of S$0.57 (previously: S$0.61).
Despite cutting our earnings, we remain positive on CSE Global as
1. we like the stock’s undemanding valuation of 8.6x FY21F PE (-0.8 SD its 4-year historical mean) and
2. we believe we are past the worst with oil prices stabilising at US$40/bbl and economies gradually reopening.
Our Target Price of S$0.57 is pegged to 10.2x (4-year historical mean) FY21F earnings.
See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-10-23

SGX Stock Analyst Report BUY MAINTAIN BUY 0.57 DOWN 0.610