CSE GLOBAL LTD (SGX:544)
CSE Global - Proposed Rights Issue To Fund Potential Acquisitions
- CSE Global announced a proposed rights issue of 1 right for every 5 shares at an issue price of S$0.33 (20.5% discount to the last traded price). If fully subscribed, the net proceeds of S$33.4m will be used to fund synergistic acquisitions in the communications business in the infrastructure industry in New Zealand and the US.
- This cash call amid poor market sentiment will likely create an overhang to CSE Global's share price. Our target price is reduced by 16% to S$0.37 after adjusting for dilution from the rights issue. Maintain HOLD rating on CSE Global (SGX:544).
CSE proposed non-underwritten rights issue.
- On 10 Oct 22, CSE Global announced a proposed non-underwritten rights issue of 1 right for every 5 shares held at an issue price of S$0.33 per share. The issue price is at a 20.5% discount to the last traded CSE Global's share price of S$0.415 and 17.7% discount to the theoretical ex-rights price of S$0.401.
- CSE Global will issue up to 102.48m shares, which could raise net proceeds of up to S$33.4m.
Majority of net proceeds intended to be used for acquisitions.
- 90% of the net proceeds will be used to fund potential acquisitions of synergistic communications businesses in New Zealand and the US. This forms part of CSE Global’s strategy to expand and grow its communications businesses in the infrastructure industry markets and participate in an expanding sector where demand for increased connectivity and security is expected to continue to grow.
- Both the potential acquisitions relate to radio and critical communications business which CSE Global views as a natural complementary fit to its business.
- The potential acquisitions are expected to strengthen CSE Global’s existing business partner and customer relationships as well as extend geographic coverage for its communications business, thereby enhancing its market position in these markets. However, there is no definitive agreement that has been entered into at this moment.
- On the other hand, 10% of the net proceeds will be used to partially repay some loans previously drawn down for acquisitions as part of CSE Global’s ongoing and prudent balance sheet management.
Irrevocable undertakings from CSE's directors, and intention to subscribe from CSE's major shareholder.
- Three of the CSE Global's directors − including the CEO, Chairman and independent director − with a total stake of around 2.8%, have given their undertakings to subscribe their portion. On the other hand, Temasek, who owns 25% stake in CSE Global, has stated its intention to subscribe their portion of rights.
- Assuming that none of the other entitled shareholders other than the undertaking shares and Temask Entities subscribe for any rights shares of 28.88m, the rights issue could raise gross proceeds of S$9.5m. We think that this cash call amid poor market sentiment will likely create a near-term overhang to CSE Global's share price.
Strong order intake in CSE's energy and infrastructure segments.
- CSE Global's order intake in 1H22 surged by 100.3% to S$421.7m, with broad-based growth registered in all industry sectors.
- Order intake for the energy sector rose by 124.0% y-o-y to S$238m in 1H22. This was mainly due to new contracts for the maintenance of integrated control systems for production facilities and a large greenfield order in the renewables space relating to the installation and integration of solar power systems amounting to S$79.3m, supported by higher order flows.
- In the infrastructure sector, order intake in 1H22 climbed by 92.9% to S$154m as compared to S$80m in 1H21, mainly due to:
- a major contract secured to provide engineering solutions for the data centre market,
- higher field service orders for the wastewater market in the Americas region, and
- stronger orders for radio communication equipment and solutions led by utility and renewables customers in Australia.
- The mining & minerals sector clinched S$30m worth of new orders in 1H22, mainly from a long-term evolution system project secured for a mine site in Australia.
CSE Global – Earnings forecast revision and recommendation
- We reduce our 2023 and 2024 EPS forecasts for CSE Global by 16% after increasing the share base by 102.48m to 614.88m. This is to account for the issuance of new shares from the proposed rights issue.
- Maintain HOLD rating on CSE Global with a 16% lower target price of S$0.37, pegged to an unchanged 13x 2023 P/E (+1 standard deviation above mean).
- See
- Caralysts:
- 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/
2022-10-12
SGX Stock
Analyst Report
0.37
DOWN
0.440
