CSE GLOBAL LTD (SGX:544)
CSE Global - Attractive Entry Opportunity
- CSE Global's 9M20 net profit in line with our expectations, increased 26.4% y-o-y to S$20.2m.
- CSE Global's 9M20 revenue rose 26.5% y-o-y to S$373m, mainly driven by O&G segment.
- O&G EBIT margins under pressure due to lower utilisation and COVID-related inefficiencies.
CSE Global's 9M20 Results Review
9M20 net profit was in line with our expectations, increased 26.4% y-o-y to S$20.2m.
- CSE Global (SGX:544)’s net profit increase in 9M20 was proportionate with its expansion in revenue. Net profit margin was maintained at 5.4%.
- While 9M20 net profit formed 82% of our FY20F estimates, we are expecting a smaller contribution in 4Q20 as new orders from its Oil & Gas segment contract.
9M20 revenue increased 26.5% y-o-y to S$373.4m mainly driven by its O&G segment.
- The increase in revenue was largely driven by its O&G segment, which had the full-year contributions from Volta and the commencement of its two large O&G contracts. Based on CSE Global’s new orders and outstanding orders, we estimate that its 9M20 revenue from O&G increased 32% y-o-y to S$255m.
- We believe revenue from its Mining & Minerals (“M&M”) segment also contributed to the growth, increasing 48% y-o-y to S$40m.
9M20 EBIT increased 29.3% y-o-y to S$27.3m; EBIT margins for its O&G segment under pressure.
- CSE Global’s 9M20 EBIT margins increased slightly, by 0.2ppts to 7.3%. Its O&G segment faced EBIT margin pressures in 3Q20 due to:
- Lower utilisation levels from a decrease in O&G flow business orders and revenue, and
- A decline in efficiency due to pandemic-related procedures implemented.
- We believe EBIT margins in its two other segments (Infrastructure and Mining & Minerals) remained relatively stable.
Overall Thoughts and Recommendation
Trimmed FY21F earnings marginally by 2% due to EBIT margin pressure on its O&G segment.
- We are lowering our CSE Global's FY21F O&G EBIT margin assumption to 6.0% (previously 6.5%) to reflect the lower utilisation levels (or compensation from the potential reduction in workforce) as well as the increased inefficiencies.
Nearing or past the worst; not expecting any large O&G contract wins.
- Oil prices have largely stabilized at US$40/bbl as the oil market regained demand-supply balance. While the oil prices are lower than pre-COVID levels and may have some lingering impact on earnings in the near term, we believe the worst for its O&G is likely nearing or over. However, we are not expecting any large O&G contract wins at current oil price levels.
Expect CSE likely to maintain its final dividend of 1.50 cents per share; FY20F has an attractive dividend yield of 6.1%.
- Although CSE is currently facing a challenging outlook, we believe that it has the capacity to maintain its final dividend in 4Q20, representing an expected payout ratio of 57%. We are projecting CSE Global’s cash flow from operations to amount to S$48m in FY20F, which will be more than sufficient to service its maintenance capex of S$12.5m, repay some of its long-term debt and pay dividends of S$14m.
Maintain BUY with a lower target price of S$0.55 (previously: S$0.57) on lower 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.
- Despite cutting our earnings forecasts, we remain positive on CSE Global as
- we like the stock’s undemanding valuation of 8.3x FY21F PE (-0.8 SD its 4-year historical mean), and
- we believe we are nearing or past the worst with oil prices stabilising at US$40/bbl and economies gradually reopening.
- Our target price of S$0.55 is pegged to 10.1x (4-year historical mean) FY21F earnings.
Wei Le CHUNG
DBS Group Research
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Lee Keng LING
DBS Research
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https://www.dbsvickers.com/
2020-11-13
SGX Stock
Analyst Report
0.55
DOWN
0.570
