CSE GLOBAL LTD (SGX:544)
CSE Global - Safe Proxy For Oil Recovery Backed By Attractive Dividend Yield Of > 5%
- We turn more positive on CSE Global as its oil and gas segment could be turning a corner with the rise in oil prices. Its order intake from infrastructure and mining grew 22% y-o-y in 2020 despite COVID-19.
- Furthermore, the last time CSE Global secured a large greenfield order win in the infrastructure space was over two years ago, providing scope for a sizeable infrastructure project win in the near term.
- CSE Global's dividend yield is above average at 5.1%. Upgrade to BUY with a 28% higher target price of S$0.68.
CSE Global - Proxy for rise in oil price.
- While oil price volatility continues, the steady price rise has underpinned the nascent recovery of the oil industry. WTI is currently trading at US$50- 66, a sequential recovery of 38% above the average of US$44 in 2H20. The supportive factors for the oil price include supply curbs by OPEC, cold weather that swept across the US, particular Texas, and potential oil demand recovery in 2H21 as COVID-19 vaccines are being rolled out globally.
- We believe CSE Global (SGX:544) is well positioned to leverage on opportunities in the recovering oil sector, making it a safe proxy for the rise in oil prices. The orderbook in CSE Global’s oil and gas segment was down 41% y-o-y in 2020, partly due to the high base in 2019. That said, the order intake for the segment rose 30% q-o-q in 4Q20, signalling that the segment could be turning a corner.
Infrastructure and mining segment resilient despite the pandemic.
- Despite the impact from COVID-19, the orderbook for infrastructure and mining grew 21% and 22% y-o-y respectively, proving to be strong pillars for the group. Earnings momentum from these segments should be sustained with greater orders and a growing orderbook as CSE Global builds on its dominant position as a nationwide player in the two-way radio communication industry in Australia.
- Furthermore, we highlight that 4Q18 marked the last time CSE Global secured a large greenfield project from the Singapore government. Given that it was over two years ago coupled with the rise in infrastructure spending by the Singapore government, there is scope for a sizeable infrastructure project win in the near term. Our forecast has not incorporated any large greenfield order wins.
CSE's dividend yield is attractive at 5.1%.
- See CSE Global's dividend history. We expect CSE Global to maintain its full-year dividend at S$0.0275 per share for 2021, translating into an above average dividend yield of 5.1% vs FSSTI’s 3.6%. We believe this is sustainable given CSE Global’s strong operating cash flow and low net gearing.
Recent share buyback underlines CSE management’s confidence in the company.
- Since Mar 21, CSE Global has commenced share buybacks amounting to 2.2 million shares at an average of S$0.52 per share, potentially indicating management’s confidence in the outlook of the company.
Earnings Revision & Recommendation
- We raise our 2021-23 earnings forecasts for CSE Global to S$23.1m (+1.8%), S$26.6m (+7.4%) and S$27.1m (7.5%) respectively as we adjust our order intake and margin assumptions upwards.
- Upgrade CSE Global to BUY with a higher P/E-based target price of S$0.68 (previously S$0.53), pegged to 13x 2022F P/E, +0.5SD above 5-year forward mean P/E of 11.4x as we roll forward our valuation pegged to 2022.
- Our target price implies a dividend yield of 4%.
- See CSE Global Share Price; CSE Global Target Price; CSE Global Analyst Reports; CSE Global Dividend History; CSE Global Announcements; CSE Global Latest News.
Catalyst
- Catalysts to CSE Global Share Price include:
- Large greenfield O&G & infrastructure project wins.
- Recovery in oil prices.
- Accretive acquisitions.
John Cheong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-04-07
SGX Stock
Analyst Report
0.68
UP
0.530
