|The Business Times reported that recent acquisitions have shored up CSE Global’s ($0.495, down 1.5 cents) financial performance, making the tech solutions provider a bright spot in the Covid-19 pandemic-hit oil & gas sector.
CSE Global is now eyeing a “consolidator” role in the downturn.
CSE is looking at buying opportunities in the oil and gas and the critical infrastructure sector in SG and AU, according to MD Lim Boon Kheng.
CSE Global currently serves the oil and gas industry in the Americas, with clients including oil majors BP and Shell, as well as in the infrastructure and mining segments in APAC.
CSE is also exploring how it can collaborate with its new major share holder, Heliconia Capital Management, on both M&A strategy and pursuing new growth areas.
In early July, Temasek-owned Heliconia acquired a 25 per cent stake in CSE via a married deal with Malaysian engineering services provider Serba Dinamik International.
The latter had bought its stake back in 2018.
|“Heliconia is not active in the day-to-day management, but they do have a big balance sheet. The question is whether we can work together more in terms of acquisitions and growth areas; that is something that I think they are open to… We are still discussing what are the new growth opportunities going forward,” Mr Lim (photo) said.
Sectors of interest include the Internet-of-Things (IoT) connectivity, automation, communication and security services.
CSE may also explore cross-selling opportunities via Heliconia’s network.
When asked about the circumstances behind Serba Dinamik’s exit, Mr Lim said that he was not privy to the transaction but that both firms still work together.
This year is shaping up to be a challenging one for CSE, given the dual impact of the Covid-19 pandemic and the fall in oil prices.
CSE’s share price declined from over 54 Singapore cents in early-March to 32 cents about midway through the month.
It closed last week at 49.5 cents.
The second quarter of the year was especially challenging, said CSE’s chief financial officer Eddie Foo.
“There were a lot of restrictions, not just in travel, but also with our customers’ sites, in the US, Australia and Singapore. That affected our ability to service our customers and hence also bill our customers for the maintenance work,” he said.
Even so, CSE delivered a strong set of numbers for H1.
It recorded a 47.7 per cent rise in earnings to S$15.1 million. This was partly because the firm had “the benefit of the incremental contributions” from recent acquisitions, Mr Foo said.
Revenue rose 39.1 per cent to S$255.6 million, led by a 51.7 per cent rise in income from the Americas to S$172.2 million.
It also maintained its interim dividend from the previous year at 1.25 cents per share.
|• In March last year, a CSE unit acquired an Australian firm specialising in two-way radio systems.
The purchase of RCS Telecommunications for A$11.64 million was funded by internal resources.
• About six months later, another CSE unit bought US industrial power systems manufacturer Volta for US$25.1 million.
• It also acquired Volta Properties, which houses the operations of Volta, for US$17 million. These purchases were financed by a mix of internal resources and bank borrowings.
CSE Global’s market cap stands at S$253mln and currently trades at PE of 8.8x and 1.3x PB.
Dividend stands at 5.6% and net gearing stands at 11.2%.
For the recent 1H20, CSE Global recorded a 47.7% jump in NPAT from S$192.6mln to S$242.1mln.
|CSE Global’s recent purchase of Volta was opportunistic and well placed, and we believe that further acquisitions (with decisions aided by Temasek) would likely be synergistic and would shore up profitability in the longer run.
Given CSE’s strong financial position, increasing order book which contributes to its flow business, steady dividends (2.75 Scts at 60% payout ratio), and considering Temasek’s recent entry at S$0.45, we maintain a BUY call on CSE Global.