Excerpts from UOB KH report

Analysts: Joohijit Kaur & John Cheong

CSE Global (CSE SP) Outlook Remains Positive
The outlook for smaller brownfield and greenfield projects remains positive, providing a steady flow of income for CSE.

CSE GLOBAL

Share price: 
47 c

Target: 
65 c

Potential wins in future government tenders in relation to the Smart Nation initiatives in Singapore will add to CSE’s growth in 2020.

CSE has completed four acquisitions in 2019 thus far, which we expect would have a more meaningful impact to earnings in 2020.

At the current price, CSE offers a generous dividend yield of 5.9%.

We re-iterate BUY and PE-based target price of S$0.65.

WHAT’S NEW
• Stable orderbook; positive outlook for flow business

Factoring in the S$106m order intake in 2Q19, the group’s outstanding orderbook as of 1H19 stands at S$188m.

Infrastructure commands the highest backlog proportion at 70% on the back of the sizeable order wins of S$84.8m in 4Q18, mostly from security related government contracts in Singapore which we estimate made up roughly 70% of the order win.

Brownfield and small greenfield projects commanded more than 90% of revenue in the past few quarters.

Outlook for these projects that are recurring in nature appears positive as management expects to see a steady flow of small projects from its existing customer base in the infrastructure and oil and gas segments.

For large oil and gas greenfield projects, we understand it remains a wild card.

briefing819(L-R): MD Lim Boon Kheng | Non-executive Chairman Lim Ming Seong | CFO Eddie Foo. NextInsight file photoBeneficiary of Smart Nation initiatives in Singapore. With the government’s emphasis on smart nation initiatives and the inclusion of digital defence as part of the overall Total Defence framework, CSE will be able to capitalise on future government tenders in this space.

Management shared that the focus for infrastructure in the near term will be on Singapore government-related projects; further wins in this area will add to CSE’s growth momentum in 2020.

Meanwhile, in the Australia infrastructure business, CSE will focus on strengthening and securing growth in the energy solutions and radio business.

Strategic M&As. CSE has embarked on a series of acquisitions over the years and has established a good track record in acquiring companies to strengthen the business, especially in the Australia two-way radio communications business where they have taken an inorganic approach to bolster their presence in the business.

Revenue from the two-way radio communications business increased from S$5m in 2015 to S$46.9m in 2018.

The group has completed four acquisitions in 2019 thus far, the most recent being Volta which serves oil and gas players in the midstream segment.

We expect these recent acquisitions to drive growth and bring a meaningful impact to earnings in 2020.

STOCK IMPACT

"While there could be certain acquisition related costs in 3Q19, we expect a stronger 2H19 as there were certain project delays in 1H19 and the Singapore infrastructure project won in 4Q18 should bring more significant contribution in 2H19."

-- UOB Kay Hian

Stronger 2H19. CSE continues to explore projects and new investments; large oil & gas greenfield wins will be a positive surprise.

Overall, management expects an increase in activities and a better financial performance for 2019.

• Attractive dividend yield at 5.9%. The group has adopted an absolute DPS payout of 2.75 S cents/share since 2014 and intends to maintain dividend at 2.75 S cents/share for 2019, translating to a generous dividend yield of 5.9%.


EARNINGS REVISION/RISK
• We maintain our earnings estimates.

• Risks include lower-than-expected project wins and weak oil prices.

VALUATION/RECOMMENDATION
• Re-iterate BUY and PE-based target price of S$0.65, pegged to peers’ average of 15x 2019F PE.

SHARE PRICE CATALYST
• Large greenfield O&G project wins.
• Large greenfield infrastructure project wins.
• Accretive acquisitions.


Full report here


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