Excerpts from CGS-CIMB report
Analyst: Cezzane See
|CSE Global 2Q20: systems still solid
■ CSE’s 1H20 core net profit of S$12.0m was slightly ahead at c.53.4% of our FY20F estimate (S$22.4m) but in line with consensus at 50.4% (S$23.8m).
■ Reiterate Add with a higher TP of S$0.60, still based on 12x CY21F P/E (close to 2014-19 average of 11.7x) on stronger-than-expected prospects.
Core net profit up on higher revenues and gross margins
CSE’s 1HQ20 revenue of S$255.6m (up 39.1% yoy) was ahead on higher flow revenues and contributions from CSE’s new acquisitions, especially in the oil and gas (O&G) and mining and minerals (M&M) segments which saw 1H20 revenue increase by 47.9% and 67.1% yoy respectively.
1H20 GPM was strong at 30.3% (vs. 1H19’s 27.6%) due to more maintenance projects (better product mix), taking 1H20 GP to S$77m (+52.5% yoy).
Higher revenue and GPMs led to 1H20 core net profit of S$12.0m (up c.10% yoy).
An interim dividend of 1.25Scts was announced.
2Q order wins lifted by non-oil and gas segments
CSE won S$114.9m worth of orders in 2Q20 (Fig 4). While the O&G segment saw orders decline (-39% qoq/-10.6% yoy), the infrastructure and M&M orders offset the decline in O&G orders in 2Q.
1H20 order intake was S$242.1m while end-June order book was S$293.8m (vs.1H19: S$187.6m).
While CSE said Covid-19 affected the pace of sales efforts, there was no material collectability issue.
Despite the lower crude oil price environment, CSE said there were no material project/order book cancellations.
CSE remains confident of delivering a FY20F net profit that is at a similar level to FY19’s (reported S$24.1m) and that it expects to continue to receive new orders in 2H especially from the infrastructure and M&M segments.
As such, we lift our FY20-22F EPS forecasts by c.10% as we reflect higher contract intake assumptions of S$440m-480m (vs. S$360m-460m previously), better GPMs and lower interest costs.
We reiterate Add on CSE with a higher target price of S$0.60, still based on 12x CY21F P/E, close to the 5-year (2014-2019) average of 11.7x.
Potential re-rating catalysts are swifter project execution and higher-than-expected order wins (thus revenues).
Downside risks are lower-than-expected order wins and potential cuts in DPS.