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Analysts maintain ‘hold’ on CSE Global, noting headwinds ahead

Lim Hui Jie
Lim Hui Jie11/22/2022 02:27 PM GMT+08  • 3 min read
Analysts maintain ‘hold’ on CSE Global, noting headwinds ahead
CSE Global has a robust orderbook, but still faces supply chain disruptions, negatively impacting deliveries to customers. Photo
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Analysts from CGS-CIMB Research and UOB Kay Hian (UOBKH) have maintained their “hold” recommendations on CSE Global, foreseeing a mixed outlook for the company.

CGS-CIMB analysts Kenneth Tan and Lim Siew Khee have raised their target price marginally to 38 cents from 37 cents, while UOBKH’s John Cheong and Heidi Mo have kept their target price unchanged at 37 cents.

CGS-CIMB’s Tan and Lim think that the “worst is likely over” for CSE Global, explaining that its 3QFY2022 results ended September were “in line” with expectations.

They say that CSE’s 3QFY20222 revenue of $141 million brings the company’s 9MFY2022 revenue to 73% of their forecasts, as well as 75% of Bloomberg consensus forecasts for FY2022.

The analysts elaborate that 3QFY2022 infrastructure revenue came in 45% higher y-o-y at $54 million, driven by stronger contributions from all core markets, while energy revenue increased 7% y-o-y to $72 million on the back of more flow orders executed in the Americas.

At UOBKH, the analysts note that the company’s order intake remains robust, with its 9MFY2022 order intake up 77.3% y-o-y to $587 million. This figure has already exceeded the order intake for the whole of FY2021.

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Improvement was recorded across all of CSE’s industry sectors, with orders rising 80.5% in the energy sector to $325 million in 9MFY2022, they add.

This was due to higher field services orders, new contracts for the renewables market and for maintenance of integrated control systems for production facilities secured in the Americas region.

Order intake for the infrastructure sector also rose by 80.5% y-o-y to $209 million in 9MFY2022, mainly from new major contracts for the data centre market, as well as more wastewater and industrial project orders obtained upon increased infrastructure spending in the Americas region.

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Despite the promising outlook, the analysts highlight that supply chain disruptions are still negatively impacting CSE’s deliveries to customers, with component lead times extended by about 6 months.

In their report, UOBKH’s Cheong and Mo say that despite the easing of restrictions across the regions, CSE continues to face supply chain disruptions, particularly in chipsets.

As a result, project execution timeframes nearly doubled, causing substantial delays in project completion. Coupled with inflationary pressures, gross margins are likely to be affected in the near term

CGS-CIMB’s Tan and Lim say that CSE’s management also expects margins to be dampened from higher travel costs, as these are mostly absorbed by CSE.

In addition, it is reviewing potential headcount reductions in its US energy business, and this could result in one-off retrenchment costs in FY2023.

Nonetheless, CSE still stands by its previous guidance of a h-o-h net profit improvement in 2HFY2022, but Tan and Lim cut their FY2022 ebit forecast by 7%-13% to account for slower recovery and inflationary pressures.

Shares of CSE Global were trading at 35 cents, with a FY2022 P/B ratio of 0.97x and dividend yield of 7.75%, according to CGS-CIMB’s estimates.

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