CSE GLOBAL: Return of oil & gas contracts

Excerpts from CIMB report

Analysts: Cezzane SEE and LIM Siew Khee

Wins herald the return of oil & gas contracts
● CSE announced that it had won two deepwater offshore contracts valued at c.S$42m (US$30m) for integrated control systems to be executed in the Gulf of Mexico. We are extremely positive on the wins as it signifies the return of major oil & gas contracts, post-contract drought in 2016. The contracts would be executed in FY17-18F.

CSE Global
Stock price: 50 c	Target price: 59 c

Gulf of Mexico sees green shoots with project sanctions
● There was no mention of the specific deepwater projects that CSE won. Based on industry sources, we understand there are at least 2-3 projects in the Gulf of Mexico that were given the “good-to-go” at end-16/beginning-17 by players that include Anardarko, Shell and BP. We view such news as encouraging signals for 2017.

Order book booster
● The wins boost CSE’s oil & gas segment order backlog to c.S$117.2m (vs. S$75.2m at end-16) and bring the group’s total order backlog to S$205.0m (vs. S$163.1m at end-16).

● In 2016, order intake for the oil & gas segment narrowed by 34% to S$194.6m (vs. S$295.0m in 2015), becoming the main drag on the group’s earnings.

Other divisions did better, as the mining & mineral and infrastructure divisions registered jumps of 182% (from S$11.3m in 2015 to S$31.9m in 2016) and 35% (from S$44.5m in 2015 to S$60.1m in 2016), respectively, in their order intake for 2016.

Potential for big wins in 2017?
● We estimate FY17F order intake of c.S$350m, comprising S$60m-70m brownfield wins per quarter and the remaining S$70m-110m greenfield projects by the oil & gas and infrastructure divisions.

"CSE continues to be one of our sector favourites for its healthy balance sheet (net cash of S$70.2m at end-16) that gives it the ability to ride through volatile times. Although FY16 net profit was weaker yoy, management upheld DPS of 2.75Scts (yield of 5.6% p.a.). It has guided that it will continue to do so in FY17F."

-- Cezzane See and Lim Siew Khee (photo)

Given these initial greenfield wins of c.S$42m (i.e. 38- 60% of our FY17F greenfield forecast), we believe there is a high possibility that CSE will outperform our 2017F order intake estimate. However, we opt to be conservative, for now as the year has just begun. In comparison, 2016 total order intake was S$286.6m.

Maintain Add on our sector top pick for stable balance sheet
● We maintain our EPS forecasts, Add call and target price, still based on FY18 P/E of 12x (historical 5-year mean).

● Downside risks are lower-than-expected contract wins and margins.

CSE GLOBAL: Return of oil & gas contracts

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