CSE Global - CGS-CIMB Research 2020-11-09: 3Q20 Systems Intact

CSE GLOBAL LTD (SGX:544)

CSE Global - 3Q20 Systems Intact

CSE Global's 9M20 core net profit of S$17.1m (ex-1H20 net exchange gain) was largely in line, at c.69% of our/consensus FY20F estimates (S$24.7m/S$24.7m).
We believe the O&G segment may see some near-term sluggishness, but CSE Global’s strong order backlog should see it through these tough times.

Reiterate ADD for CSE Global with a unchanged target price of S$0.60, still on 12x P/E (close to 2014-19 average of 11.7x) but rolled forward to CY22F EPS.

CSE Global (SGX:544)’s 3Q20 revenue of S$117.9m (+5.7% y-o-y) took 9M20 revenue to S$373.4m (+26.5% y-o-y). The 9M revenue was ahead on recognition of large oil and gas (O&G) revenues and incremental flow revenues from new acquisitions.
CSE Global's 3Q20 net profit was down (-11.6% y-o-y) as it was skewed by a non-recurring divestment gain of S$0.7m in 3Q19 (which created a high base effect) and higher effective tax rate levels due to more Australian projects (which fetch higher effective tax) in 3Q20.
9M20 core net profit (excluding S$3.1m net exchange gains in 1H20) was S$17.1m (+7% y-o-y).

CSE Global won S$91m (-41.7% y-o-y) worth of orders in 3Q20, taking cumulative wins to S$333.1m (-4.5% y-o-y).
While 9M20 O&G segment orders declined by 21.6% y-o-y, infrastructure and mining and minerals (M&M) orders grew 26.8% y-o-y and 51.9% y-o-y, respectively. End-Sep order book was up 14.8% y-o-y to S$267m (vs. 9M19: S$232.6m).

With regards to COVID-19, CSE Global mentioned that as most of its operations are deemed essential services, there has been no halt to activities, although mobility limitations have borne inefficiencies. Nevertheless, there have been no material collectability issues.
With regards to the lower crude oil price environment, CSE Global expects fewer opportunities and lower prices in forward O&G orders but maintains that there have not been material project/order book cancellations and collectability issues thus far.
We trim our CSE Global's FY20-22F EPS forecasts, largely on the back of higher effective tax expenses given that there will be a higher mix of Australian projects moving forward, in our view.

We think the O&G segment may see near-term sluggishness due to the low crude oil prices and the political uncertainties in America. However, a strong order backlog and continued diversification to infrastructure and M&M industries could provide a cushion in these tough times.
We also think CSE Global’s dividend yield would be intact on the back of continued cashflow generation.
We reiterate ADD on CSE Global with an unchanged target price of S$0.60, still based on 12x, close to its 5-year (2014-2019) average of 11.7x, but rolled forward to FY22F EPS.
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.
Downside risks are lower order wins and potential cuts in DPS.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-09

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