CSE Global - UOB Kay Hian 2021-05-25: 1Q21 Weakness Due To Weather Disruption; Expect Better Quarters Ahead

CSE GLOBAL LTD (SGX:544)

CSE Global - 1Q21 Weakness Due To Weather Disruption; Expect Better Quarters Ahead

CSE Global’s 1Q21 EBITDA of S$10m (-22% y-o-y) was slightly below expectation, forming 21% of our full-year estimates. The miss was due to lower revenue from the energy segment that was affected by severe winter weather in the Americas, which we expect to reverse in the coming quarters from delayed revenue recognition.
There was a strong showing from the infrastructure segment which reported a 21% y-o-y growth in revenue and 50% y-o-y growth in order intake.
Maintain BUY on CSE Global. Target price: S$0.68.

CSE Global (SGX:544)’s 1Q21 business update highlighted EBITDA of S$10m (-15.7% y-o-y) for the quarter. The reported EBITDA accounts for 21% of our full-year EBITDA estimates, missing expectations.

Revenue declined 15.7% y-o-y to S$111m in 1Q21, mainly due to lower revenue from the energy segment (-27.7% y-o-y). The steep decline for the segment was largely attributed to a slower-than-expected start for the year, which was further disrupted by the severe winter weather that swept across the US in Feb 21.
Furthermore, EBITDA was further impacted by:
1. lower gross profits, and
2. an increase in unallocated personnel costs due to lower labour utilisation caused by lower business activity.
CSE Global's EBITDA margins fell to 9.8%, 0.8ppt lower from 1Q20. However, we expect revenue for the segment to catch up in the coming quarters on the back of delayed revenue recognition, as it recovers from the setback caused by the harsh weather.

On a more positive note, revenue from infrastructure – CSE Global’s second largest segment – rose 21% y-o-y, and continued to be a strong pillar for the group. The growth was mainly driven by higher spending in transport infrastructure and electrical protection for utilities, particularly in Australia, Singapore and the UK.

CSE Global added S$106m worth of orders in 1Q21, down 16.5% y-o-y as a result of lesser orders in the energy segment (-36% y-o-y). The decline was partially offset by a 50% y-o-y jump in infrastructure order intake to S$38m, which was attributed to a stronger pipeline of infrastructure projects, across all key geographies such as Australia, Singapore, the UK and the US. With that, CSE Global ended the quarter with an order backlog of S$231m (-23.7% y-o-y).

Despite the impact from the COVID-19 pandemic, CSE Global’s infrastructure segment saw its revenue grow 21% y-o-y and order intake for the quarter rise 50%. Earnings momentum from these segments should be sustained with greater order intake and 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 the group secured a large greenfield project from the Singapore government. Given that it was over two years ago, and coupled with the rise in infrastructure spending by the Singapore government, we believe that there is scope for a sizeable infrastructure project win in the near term. Our forecast currently has not incorporated any large greenfield order wins.

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 5.3% vs the FSSTI’s 4%. We believe this is sustainable, given CSE Global’s strong operating cash flow and low net gearing.

No change as we expect CSE Global to report better earnings in the coming quarters from delayed revenue recognition from the energy segment.

Maintain BUY on CSE Global with a PE-based target price of S$0.68, pegged to 13x 2022F P/E, +0.5 standard deviation above its 5-year forward mean P/E of 11.4x. Our target price for CSE Global implies a dividend yield of 4.4%.
See

John Cheong UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-05-25

SGX Stock Analyst Report BUY MAINTAIN BUY 0.680 SAME 0.680