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CSE Global - DBS Research 2020-11-13: Attractive Entry Opportunity

CSE GLOBAL LTD (SGX:544) | SGinvestors.io 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:
    1. Lower utilisation levels from a decrease in O&G flow business orders and revenue, and
    2. 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.






Wei Le CHUNG DBS Group Research | Lee Keng LING DBS Research | https://www.dbsvickers.com/ 2020-11-13
SGX Stock Analyst Report BUY MAINTAIN BUY 0.55 DOWN 0.570



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