CSE GLOBAL LTD (SGX:544)
CSE Global - 1H21 Earnings In Line; Expect Better Quarters Ahead
- CSE Global's 1H21 earnings of S$10m (-33% y-o-y) were in line, forming 44% of our full-year estimates. Revenue fell 8% y-o-y because of project delays, lower time and material revenues in America due to the pandemic. There was strong showing from the infrastructure segment which reported a 40% y-o-y growth in revenue and a 25% y-o-y growth in order intake.
- Outlook for the energy segment remains cautious, while infrastructure and mining segments are good.
- Maintain BUY on CSE Global. Target price: S$0.68.
CSE Global's 1H21 earnings in line with expectations.
- CSE Global (SGX:544)’s 1H21 earnings of S$10m (- 33% y-o-y) were in line, meeting 44% of our full-year estimate. Revenue fell 8.3% y-o-y, mainly due to project delays, lower time and material revenues in America which were impacted by COVID-19, the severe winter in the first quarter as well as volatile energy prices.
Order intake momentum stabilising, with bright spot in the infrastructure segment.
- CSE Global secured a healthy pipeline of projects of S$211m in 1H21 (-13% y-o-y / -2% q-o-q). 2Q21 order intake remains stable at S$104m (-2% q-o-q). CSE Global sees opportunities in the infrastructure sector with the need for more public infrastructure projects, alongside growing digitalisation, automation, physical and cyber-security requirements.
- Although 1H21 order intake for the energy and mining sectors have declined 25% and 33% y-o-y, new orders for the infrastructure sector soared 25% y-o-y to S$79.7 million, mainly attributable to higher orders for radio communication and solutions due to a stronger pipeline of infrastructure projects across all key geographies of Australia, the UK and the US.
Mixed outlook.
- CSE Global’s customers in the energy sector remain focused on their capital spending discipline that will translate to fewer large greenfield contract awards in the coming months, though it continues to see a steady pipeline of projects from its infrastructure and mining and minerals customers.
Order intake of S$104m (-10% y-o-y, -2% q-o-q) in 1Q21.
- CSE Global added S$104m worth of orders in 2Q21, down 10% y-o-y as a result of fewer orders in the energy segment (-7% y-o-y). The decline was partially offset by an 8% y-o-y jump in infrastructure order intake to S$41m, 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$212m (-28% y-o-y).
Infrastructure resilient against the pandemic.
- Despite the impact from the COVID-19 pandemic, CSE Global’s infrastructure segment saw its 1H21 revenue grow 40% y-o-y and order intake rise 25%. Earnings momentum from these segments should be sustained with greater order intake and growing orderbook, supported by increasing requirements for digitalisation and enhancements in physical and cyber security.
- 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, there is scope for a sizeable infrastructure project win in the near horizon.
- Our current forecast has not incorporated any large greenfield order wins.
Dividend yield is attractive at 5.3%.
- 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.
Maintain BUY on CSE Global
- No changes as we expect 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
- Share price catalyst:
- Large greenfield O&G and infrastructure project wins.
- Recovery in oil prices.
- Accretive acquisitions.
John Cheong
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-08-13
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