CSE GLOBAL

Share price: 
43 c

Target: 
59 c

Source: RHB Research

In recent times, CSE Global has been held up by analysts as a top pick, especially as a proxy to the recovering oil & gas outlook.

However, the profit contributions from businesses that CSE categorises under "infrastructure" look dependable and, even better, are a growth driver in 2018 (whose full year results are pending).

It's not a one-off. Contributions from "infrastructure" accelerated in 2017, as the table on the company's earnings before interest and tax (EBIT) shows:

 

EBIT by Industries
(S$’ million)

2015

2016

2017

9M2018

Oil & Gas

30.6

17.3

4.7

9.0

Infrastructure

8.2

8.4

15.2

10.7

Mining & Mineral

1.6

1.9

(0.2)

-0.2

Total

40.5

27.6

19.6

19.4

Source: Company 3Q18 presentation

 

Revenue by Industry
(S$’ million)

2015

2016

2017

9M2018

Oil & Gas

345.0

236.8

246.2

187.3

Infrastructure

53.9

58.9

90.5

77.2

Mining & Mineral

13.1

22.0

25.7

12.2

Total

412.0

317.8

362.4

276.7

Source: Company


Recently, the roar of the "infrastructure" segment grew louder with the 14 Jan 2019 announcement that CSE had clinched approximately S$85 million of contracts in 4Q18 in that segment.

The press release didn't give away details, and the term "infrastructure" is very broad and might even give rise, in some investors' minds, to the notion of construction work.

We understood better after an interview last week with the MD, Lim Boon Kheng. 

The majority of the "infrastructure" contracts secured in 4Q18 were awarded by the Singapore government.

While details are hush-hush, the projects that CSE wins from the government are known to revolve around communications, security and automation.

Given that CSE's typical infrastructure-related contract wins of $20-25 million per quarter, the large orders secured in 4Q18 reflected an exceptionally big project (or projects) and maintenance contracts.

LimBoonKheng“Over the years, we have picked up a lot of know-how outside Singapore and can introduce some of those best practices in Singapore.

-- Lim Boon Kheng,
Managing Director,
CSE Global.

Big projects there will always be (and perhaps more than ever before under Singapore's Smart Nation vision), and this is where CSE is up against the big government-linked companies.

CSE seeks a higher profile in that space.

The company actually has historical links to government, being a spin-off (1997) from Singapore Technologies, a group of companies with interests in engineering, technology, infrastructure and lifestyle, property, and financial services. 

It's 20 years since CSE listed (1999, 20th anniversary in Feb) on the Singapore Exchange.

For the greater part of that period, it had gone overseas for growth, targeting the oil & gas industry until the fall of oil price that started in 2014.

Along the way, CSE did some work for various government agencies in Singapore.

CSE maintains the existing Electronic Road Pricing system and is part of the consortium that has been awarded the project to develop the next-generation Electronic Road Pricing system.
 

So, that's only so much we can know about CSE's "infrastructure" contracts that are bagged in Singapore.

2wayradioAdvantages of 2-way radio communications enable it to stay prevalent in many industries. Photo: Company In Australia, the bulk of the "infrastructure" projects are also government contracts involving the provision of two-way radio services for a wide range of personnel in ports, airports, the police force, and fire and prisons services, etc.

The radios used are Motorola, which awarded CSE a nation-wide distributorship in 2015 in conjunction with CSE's acquisition of five Motorola dealers in various parts of Australia.

CSE designs, installs and maintains two-way radio communications for both permanent and temporary locations.

CSE offers turnkey solutions or will provide rental and managed systems. (The CSE Australia website has a lot of information on the businesses).
   
The Australian communications business contributed S$42 million in revenue in 2017, out of CSE group's total "infrastructure" segment revenue of S$90.5 million. 


Stock price

43 c

52-week
range

34-52c

PE (ttm)

--

Market cap

S$219 m

Shares outstanding

509 m

Dividend 
yield 

2.75 c / 6.4%

1-year return

21%

Source: Bloomberg

CSE, given its relatively small size (market cap: S$220 million), tends to clinch smaller contracts (ie below $5 million) related to new projects as well as enhancements, maintenance and upgrading works for existing projects .

Says Mr Lim, the MD of CSE: "To achieve the growth we want, we need big projects and they have to come from the infrastructure segment in Singapore as well as Australia and New Zealand and the big oil & gas offshore projects.

"We target to have 10-15% of our total revenue coming from big projects."


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