Excerpts from KGI Research report

Analyst: Joel Ng

♦ There were no surprises in CSE’s 1Q19 earnings, which made up 22% of our full-year forecast.


Share price: 
50 c

58 c

 We are positive on CSE’s outlook on the back of 13-20% EPS growth in the next 3 years from better industry prospects and from synergies with its new major

 Maintain BUY. CSE’s valuations are attractive, trading at 12/11/9x 2019/20/21F EPS. We expect downside risks to be mitigated by its above-industry 5.5% dividend yield.

1Q19 review. Although revenue in 1Q19 declined 7% YoY to 
S$85.4mn, net profit rose 0.5% YoY to S$5.7mn on the back of a 90bps improvement in gross profit margins to 27.7%.

EddieFoo219CFO Eddie Foo. NextInsight file photo.Its 
Oil & Gas segment’s contribution declined to 68% of total revenues, down from 71% in the prior year period.

This was 
offset by an increase in its infrastructure segment, where contribution rose to 27% of total sales in the quarter, up from 26% in the prior year period.

Healthy order wins. CSE won S$87.5mn of new orders in 1Q19, bringing its net order book to S$182.2mn as at the end of the latest quarter.

67% of CSE’s outstanding orders 
are in the Asia-Pacific, and the remainder from the Americas and Europe/Middle East/Africa.

Sector focus in 2019. CSE will be focusing on several opportunities in its key business segments. In the Oil & Gas, management will continue its push into onshore shale projects in the US, as well as small greenfield or brownfield projects in the Gulf of Mexico.

Its infrastructure business will 
focus on Singapore government projects, and energy solutions and radio business in Australia.

Valuation & Action: CSE is currently trading at 13/11/9x 2019/20/21F EPS, which is attractive in our view given its solid balance sheet, asset light model and stable recurring free cash flows.

JoelNg10.16Management has guided that it will maintain the 2.75 SG cents dividend in FY19 - the same as in the last four years - implying an above-industry yield of 5.6%.

-- Joel Ng, analyst (photo)

We thus maintain our BUY recommendation and believe that average EPS growth of around 16% p.a. over 
the next 3 years is achievable on the back of improving industry dynamics.

Its balance sheet remains in an enviable net cash position of S$35mn as at end 1Q19.

Risks: Margin pressure due to competition and lower-than-expected new order wins. Foreign exchange risks due to its exposure to USD, AUD and EUR.

Full report here.

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