CSE Global - DBS Research 2021-02-25: Worst Is Over; Recovery Is Underway; Attractive Entry Opportunity

CSE GLOBAL LTD (SGX:544) | SGinvestors.io CSE GLOBAL LTD (SGX:544)

CSE Global - Worst Is Over; Recovery Is Underway; Attractive Entry Opportunity

  • CSE Global's FY20 net profit of S$28.0m beat our estimates by 14%.
  • Oil & Gas new orderbook bottomed out in 3Q20; increased 30.1% q-o-q in 4Q20.
  • Attractive entry opportunity to ride the recovery.

Worst is over for CSE; recovery is underway

CSE's FY20 net profit of S$28.0m beat our estimate of S$24.5m by 14%.

  • CSE Global (SGX:544)'s FY20 net profit beat was due to new orderbook exceeding our estimates, resulting in higher revenues, as well as the Group recording higher EBIT margins.
  • FY20 new orderbook exceeded our estimates by 6% (S$431.5m vs S$407.2m) as its Oil & Gas and Infrastructure segments did better than expected.
  • FY20 EBIT margin was also 0.7ppt higher than our projections (7.8% vs 7.1%) as its Infrastructure and Mining & Mineral segments increased in profitability.

FY20 revenue grew by 11.3% y-o-y to S$502.8m; 2H20 revenue declined 6.4% y-o-y to S$162.1m.

  • The increase in CSE Global's revenue in FY20 was mainly due to the full-year contributions from Volta as well as contributions from its two large Oil & Gas contracts won in 4Q19. Lower Group revenue in 2H20 was due to a weakness in the Oil & Gas market and lower recognition of Infrastructure projects.
  • FY20 EBIT grew 23.5% y-o-y to S$39.3m; 2H20 EBIT grew 11.7% y-o-y to S$19.8m. EBIT increased y-o-y in FY20 due to higher revenue, and an improved contribution and profitability in its Infrastructure and Mining & Mineral segments.
  • Its Infrastructure EBIT margin improved 2.5ppts y-o-y to 13.7% in FY20, from 11.2%, as some of its projects transitioned from the procurement phase, which typically entails lower margins, to the commissioning or finalisation stage, which carry higher margins as they are more value-adding.
  • EBIT contribution from its Mining & Minerals business also improved to S$3.9m in FY20, from S$0.6m in FY19, due to contribution from RCS Telecommunications.

Proposed final dividend of S$0.015 per share

  • Proposed final dividend of S$0.015 per share, unchanged from FY19. Including its interim dividend of S$0.0125, CSE Global’s total dividend per share in FY20 is S$0.0275 per share, representing a dividend yield of ~5.6%.
  • See CSE Global's Dividend History.

Our Thoughts, Earnings, and Recommendation

Worst is likely over for its Oil & Gas segment.

  • While its Oil & Gas new orderbook declined 53.8% y-o-y and 21.3% h-o-h, we believe the worst is over for this segment. WTI oil prices are currently trading around ~US$60/bbl, 50% above the ~US$40/bbl trading range in 2H20. US independent oil E&P companies are also projected to increase their capex in FY21, translating into more potential projects for CSE Global.
  • The 30.1% q-o-q sequential pick-up in its new orderbook raises our confidence that the new orderbook for its Oil & Gas segment has bottomed in 3Q20.

Infrastructure and Mining & Mineral segments to remain steady, sturdy contributors to EBIT.

  • Despite COVID-19, CSE Global’s Infrastructure and Mining & Mineral segments acted as the strong pillar of support amidst the challenging environment in its Oil & Gas segments in FY20. New orderbook continued to grow by 22% each in both segments in FY20.
  • Looking ahead, we think these two segments will continue to offer resilience and grow steadily as governments (in Singapore and Australia) spend more on infrastructure projects to stimulate the economy, and as commodity prices continue to trend higher, leading to more Mining & Mineral projects in Australia.

Maintain BUY with a higher target price

Wei Le CHUNG DBS Group Research | Lee Keng LING DBS Research | https://www.dbsvickers.com/ 2021-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.64 UP 0.550