SINGAPORE (Mar 8): CIMB is reiterating its “hold” call on tech group CSE Global with an unchanged target price of 39 cents, which is based on 12 times FY19 earnings.
This comes after the group guided for a dividend per share (DPS) of 2.75 cents for FY18, which is slightly higher than the 2.5 cents forecasted by CIMB and what activist investment group Quarz Capital this morning said it was satisfied with.
See: Quarz says satisfied with CSE Global's dividend guidance of 2.75 cents per share for FY18
To recap, Quarz on Feb 26 issued an open letter to CSE Global as its shareholder with a series of recommendations including the immediate distribution of $18 million and a committed dividend payout of 80%, among others.
See: Quarz Capital urges CSE Global to distribute $18 million out of net cash to shareholders
In a Thursday report, CIMB lead analyst Cezzane See notes that CSE Global’s guaranteed dividend for FY18 meets Quarz’s demands halfway.
Based on her calculations, the guided 2.75 cents DPS for FY18 implies a dividend payout ratio of 94.4% versus CIMB’s core FY18 EPS of 2.9 cents, and a yield of 7.4% based on its share price of 37 cents per share.
See also reiterates her view that the downside risks on the stock have been largely mitigated now, given how the management has guided for the flow of order wins to stabilise at current levels of about $75-85 million per quarter in FY18.
See: More for CSE Global to accomplish before CIMB turns bullish
“While we are heartened by the commitment to reward shareholders, we still believe margin expansion and new greenfield orders are integral to net profit growth ahead,” she says.
The analyst also notes that CSE is still in currently still in discussions with Quarz on aligning its top management’s compensation with shareholders’ interests, which was another recommendation on the list in Quarz’s open letter.
“Moving ahead, we look to more greenfield contracts as well as signals of gross profit margin (GPM) recovery before we turn more bullish on the stock,” concludes See.
As at 3.14pm, shares in CSE Global are trading 1.35% higher at 38 cents, or 1.11 times FY18 book value.
