CSE GLOBAL LTD (SGX:544)
CSE Global - Infrastructure Is The Key
- CSE Global’s 1H21 net profit of S$10m (-22% h-o-h) was below our expectations due to higher administrative costs (+16% h-o-h).
- Energy segment outlook remains cautious amid prudent customer capital spending. 2H21F earnings to be driven by infrastructure execution.
- We cut our FY21-23F EPS forecasts for CSE Global to account for slower energy execution and higher opex. We reiterate our ADD call with a lower target price of S$0.61.
CSE Global reported strong gross profit margin but higher opex
- CSE Global (SGX:544) reported 1H21 net profit of S$10m (-22% h-o-h, -33% y-o-y), below our expectations at 39% of both our and consensus FY21F estimates. The miss was largely due to higher-than-expected administrative costs, as there were some one-off savings in 2H20. In addition, utilisation of labour in the energy segment was lower. Accordingly, revenue from the energy segment (S$140m, -14% h-o-h) was lower, slightly offset by stronger contribution from the infrastructure segment (S$70m, +24% h-o-h).
- We like that CSE Global's 1H21 gross profit margin was strong at 30% (vs. 2H20: 28%) on the back of higher margin flow project executions, especially in the infrastructure segment.
- CSE Global declared an interim dividend of S$0.0125 per share.
New order intake still healthy despite pandemic uncertainties
- CSE Global secured S$104m of orders (-2% q-o-q, -9% y-o-y) in 2Q21, bringing 1H21 total order wins to S$211m (~46% of our FY21F forecast). 2Q21 energy segment order wins came in 8% lower y-o-y, with the decrease attributed to disruptions from the COVID-19 pandemic as well as uncertainty in energy prices.
- New order wins in 2Q21 from the infrastructure segment rose 8% y-o-y on the back of increased orders from government customers in Australia. Order book stood at S$212m at-end 2Q21 (vs. S$231m in 1Q21), of which we estimate an even split (~50%) between flow and large greenfield projects.
Stronger 2H21F from infrastructure to offset weaker energy
- Management is cautious about the energy segment outlook as customers are exercising financial prudence, which should result in fewer large greenfield contract wins in 2H21F. That said, we expect infrastructure to aid 2H21F performance due to
- increased commitment (A$15bn) by the Australian government for new infrastructure spending,
- increased projects from the Singapore government.
- We expect a stronger 2H21F on the back of execution of infrastructure projects (higher margins).
Reiterate ADD on CSE Global with a slightly lower target price
- This report marks a change in covering analyst. We cut our FY21-23F earnings per share forecasts for CSE Global by 0.4-19.2% to bake in lower energy project executions and higher opex.
- CSE Global's net debt was S$52m at end-1H21 (S$39m at end-FY20). That said, we still expect CSE Global to be a beneficiary of heightened urbanisation and digitisation.
- See
- We also like CSE Global's steady dividend yield of ~5%. Our lower target price of S$0.61 for CSE Global is still based on 12x FY22F P/E (5-year historical average).
- Re-rating catalysts include higher-than-expected order wins.
- Downside risks are lower order wins, slower-than-expected recovery in energy segment.
Kenneth TAN
CGS-CIMB Research
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LIM Siew Khee
CGS-CIMB Research
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https://www.cgs-cimb.com
2021-08-12
SGX Stock
Analyst Report
0.61
DOWN
0.630
