Excerpts from CGS-CIMB report

Analyst: Cezzane See

CSE Global
Firm flows and still-strong balance sheet

■ Following the 1H19 results, CSE said it is confident of a stronger earnings performance and sustained order intake in 2H19.


Share price: 
43 c

60 c

■ Post the three acquisitions YTD, CSE said it is still on the lookout for more value-accretive and strategic buys.

■ A stable business, strong balance sheet and dividend yield of c.6% make CSE one of our favourite small-cap stocks. Maintain Add and TP.

A stronger 2H19F
In a briefing this month, CSE said it is confident of a better 2H19 on the back of

i) completion of greenfield projects (won in 1Q17);

ii) kick-starting Singapore infrastructure projects (won in 4Q18); and

iii) increase in flow contract intake in 2Q19 that will boost revenue in 2H.

Moreover, 1H was weighed down by slower Australian project execution, non-recurring severance costs, higher sales and marketing expenses, and professional fees relating to acquisitions.

We maintain our FY19F net profit of S$21.7m.

Pick-up in flow contracts can be sustained
CSE reported strong order intake of S$106m in 2Q19 due to

i) a spike in its mining and mineral (M&M) business which grew to S$13.8m in 2Q19 (+200% yoy and qoq) and

ii) return of Australian flow contracts.

All in, 2Q19’s order intake was the highest quarterly flow intake in the last three years (1Q17 and 4Q18 included large greenfield projects).

Moving into 2H19, CSE believes these order flows can be sustained as it now has further geographical reach and its customers appear to be on a better financial footing.

YTD, order intake has grown to S$192m.

Strategic M&As to continue
briefing819At 2Q2019 results briefing (L-R): MD Lim Boon Kheng | Non-executive Chairman Lim Ming Seong | CFO Eddie Foo. NextInsight file photo CSE has embarked on three acquisitions in FY19, two within the communications space (in the UK and Australia) and one in onshore shale.

Thus far, its purchase in Australia has yielded spillover effects and led to higher order wins for its M&M segment, in our view.

CSE has reiterated that it will continue to search for potential M&A opportunities, especially in the onshore oil and gas shale and Australian communications segments.

Dividend of 2.75 Scts/share intact; dividend yield of 6.5%
In 2Q19, CSE announced an unchanged dividend of 1.25 Scts and maintained its full year DPS guidance at 2.75 Scts, which implies a payout of 1.5 Scts in 2H19F and dividend yield of 6.5% for FY19F.

Maintain Add
CSE remains our preferred small-cap O&G pick due to

CezzanneSeeCezzane See, CGS-CIMB analysti) its healthy balance sheet,

ii) sustained earnings growth,

iii) net cash position (end-2Q19 position of 5 Scts/share), and

iv) secure dividend payout.

We were heartened that CSE sees a stronger 2H19F and maintain our target price based on 13.5x FY20F P/E (at its +0.5x s.d. level, due to its better footing).

Stronger-than-expected order wins and GPMs are potential stock catalysts. Lower-than-expected order wins and GPMs are key risks to our Add call.

Full report here.

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