CSE Global - CGS-CIMB Research 2021-02-24: 4Q20 Systems Beat

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CSE Global - 4Q20 Systems Beat

  • CSE Global's FY20 core net profit of S$26.4m (ex-net exchange gain) beat our/consensus forecasts (S$23.6m/S$24.3m) on execution of higher-margin projects in 4Q.
  • FY21F EPS could be sluggish but the growing infrastructure pillar may pave the way to better margins. The strong return of O&G works is a catalyst.
  • Reiterate ADD with a higher target price of S$0.63 for CSE Global, still on unchanged 12x CY22F P/E (close to 2014-19 average of 11.7x).

A good ending to FY20 on higher-margin projects

  • CSE Global (SGX:544)'s 2H20 revenue of S$247.2m (-7.8% y-o-y) took FY20 revenue to S$502.8m (+11.3% y-o-y), ahead of our expectations, on better-than-expected 4Q oil and gas (O&G) and infrastructure segment revenues.
  • 2H20 EBIT margin was higher at 8.0% (vs. 2H19’s 6.6% and 1H20’s 7.7%) driven by higher margins from CSE Global’s infrastructure and mining and mineral (M&M) segments as some projects moved to the commissioning/ finalisation stages (better margins vs that at procurement stage) in 4Q20. This led to a sequentially stronger 2H20 net profit of S$14.4m, which took FY20 core net profit up 6.4% y-o-y, ahead of our forecast.
  • Final dividend of S$0.015 per share was announced taking FY20F dividend to S$0.0275 per share, within expectations.

Infrastructure and mining and mineral aid FY20 order wins

  • CSE Global secured S$98m (-c.33% y-o-y) worth of orders in 4Q20 , taking cumulative order wins to S$431.5m (-c.25% y-o-y). While 12M20 O&G segment orders declined (due to high base effect of greenfield projects in FY19), infrastructure and mining and minerals (M&M) orders grew ~21% y-o-y and ~22% y-o-y, respectively.
  • CSE Global's end-Dec 20 order book settled down 23% y-o-y to S$236m (vs. end-19: S$307.4m).

Slight breather in FY21F, but stronger footing going forward

  • CSE Global guided that the current market environment still presents numerous uncertainties but its remains confident it will achieve a satisfactory financial performance in FY21F.
  • We believe FY21F revenue will shrink y-o-y due to the lower end-Dec 20 order book, but as we have higher gross profit margin assumptions, we bump up our FY21F EPS forecast a tad.
  • We lift our FY22F EPS forecast by a higher 4.3% also on wider gross profit margins. We introduce FY23F numbers which feature an EPS growth of 3.3% y-o-y.

Reiterate Add on stronger footing

  • While near-term earnings could take a breather, we like CSE Global’s continued diversification into infrastructure and M&M industries which could pave the way for further margin expansion and provide an earnings cushion until the O&G segment recovers (a high possibility should the current stronger crude oil prices be sustained).
  • We also like that CSE Global offers a dividend yield of ~5.6%.
  • We reiterate ADD with a slightly higher target price of S$0.63 (from S$0.60), still based on 12x, close to its 5-year (2014-2019) average of 11.7x, on 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 dividends.

Cezzane SEE CGS-CIMB Research | https://www.cgs-cimb.com 2021-02-24
SGX Stock Analyst Report ADD MAINTAIN ADD 0.63 UP 0.600