CSE GLOBAL LTD (SGX:544)
CSE Global - 3Q21 Results In Line; Improving Order Flows
- CSE Global (SGX:544)'s 3Q21 results were in line, with 9M21 EBITDA of S$34m (-19% y-o-y) meeting 80% of our full-year estimate. 3Q21 revenue was down 2% y-o-y and EBITDA fell 23% y-o-y, due to higher selling costs in preparation for the resumption of sales activities and higher unabsorbed labour costs.
- Order intake increased 32% y-o-y, due to the recovery in the energy sector. CSE Global expects fewer large greenfield and flow projects due to supply chain disruptions.
- Maintain BUY with a lower target price of S$0.59.
CSE Global's earnings in line with expectations.
- CSE Global’s 9M21 & 3Q21 results were in line, with 9M21 EBITDA meeting 80% of our full-year estimate. 3Q21 revenue was down 2% y-o-y and EBITDA fell 23% y-o-y, mainly due to higher selling and distribution costs in preparation for the resumption of sales activities in key markets combined with the higher unabsorbed labour costs.
- Order intake improved due to a recovery in the energy sector. Order intake increased 32% to S$120m, due to the recovery in the energy sector orders which grew 52.3% y-o-y to S$73.8m, from newly-awarded power and electrification projects and higher flow work. New orders for the group’s infrastructure sector increased by 18.6% y-o-y to S$35.9m, which was attributed to higher orders of radio communication equipment and solutions, mainly driven by government customers in Australia.
- Cautious outlook for the energy sector but positive for the mining sector. The market has been impacted by supply chain disruptions and travel restrictions due to the pandemic; capital spending remained measured in the energy sector and led to fewer large greenfield and flow projects in 3Q21 and foreseeably in the coming months. Coupled with higher operating and sales costs, this further impacted CSE Global's performance in the American region and CSE Global expects similar challenges in the coming quarters. Nevertheless, increasing demand for digitalisation and enhancements in physical and cyber security has translated into a continuous, steady project pipeline in our infrastructure and mining & minerals sectors.
Infrastructure resilient against the pandemic.
- Despite the impact from the COVID-19 pandemic, CSE Global’s infrastructure segment saw its 3Q21 order intake growing 19% y-o-y. 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.
Dividend yield is attractive at 5.3%.
- We expect the group to maintain its full-year dividend at S$0.0275/share for 2021, translating into an above-average dividend yield of 5.3% vs the FSSTI’s 4.0%. We believe this is sustainable, given CSE Global’s strong operating cashflow and low net gearing.
CSE Global - Valuation
- No changes as we expect better earnings in the coming quarters from delayed revenue recognition from the energy segment.
- Maintain BUY rating on CSE Global with a 13% lower PE-based target price of S$0.59, pegged to its mean P/E of 11.4x 2022 P/E (down from 13x 2022F P/E, +0.5 standard deviation above mean). This is to reflect the more cautious outlook on the oil and gas segment and potentially higher operating costs. Our target price implies a dividend yield of 4.7%.
- See
- Catalysts:
- 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/
2021-11-15
SGX Stock
Analyst Report
0.59
DOWN
0.680
