SINGAPORE (June 4): Market watchers are taking a second look at systems integrator CSE Global following its strong set of results for 1Q20 ended 30 March.

The company clinched $127.2 million in new orders, across its operations in oil and gas (O&G), infrastructure and mining. This is a 46.6% increase from the $86 million worth of orders secured in 1Q19, the company announced in a May 4 regulatory filing.

The bulk of the 1Q orders of some $87.8 million came from customers in the O&G sector, while $25.5 million was from its infrastructure operations. The remaining $13.9 million comes from the mining sector. Together with existing projects, CSE’s order book amounted to $302.7 million as at March 31, up 66.9% from 1Q20.                                                                                                      

To CGS-CIMB Securities analyst Cezzanne See, these set of results are “healthier than expected”.

RHB Securities analysts Lee Cai Ling and Jarick Seet concur.

“We expected 1Q20 results to be relatively decent as the major disruption by Covid-19 in the key markets where CSE operates only happened in March,” the duo point out in a June 4 note. A decline in oil prices had also influenced their concerns on the counter.

See, Lee and Seet add that the company’s acquisitions of US-based telephone operator Volta in September 2019, proved accretive.

The acquisition had caused CSE’s net debt position to rise previously as it leveraged on borrowings to fund the move.

However, its strong operating cash flow of $17.3 million in 1Q20 has “helped pare down its debt quicker and lower its net debt position from $44.5 million to $32.7 million,” observe Lee and Seet. At this level, the company has a net gearing of 0.18x.

Going forward, the company anticipates a hit in orders. “The current market environment presents numerous uncertainties going forward in terms of the Covid-19 pandemic, low oil and gas prices and a weak global economic environment,” CSE’s managing director Lim Boon Kheng told The Edge Singapore in an interview.

In this vein, Lee and Seet say they “remain cautiously optimistic on the company’s prospects”. 

“Travel restrictions, coupled with the awfully low oil prices, had somewhat impacted its business in April and May – such as lower profit margin due to lower pricing of orders and fewer orders,” they add.

As such, they expect CSE’s good 1Q20 performance to reverse in 2Q20.

But as countries look to easing restrictions and reopen their borders, Lee and Seet believe the worst could be over.

“With a robust order book, and resilient business flow, we think FY20 performance will likely meet our lowered expectations. Most of CSE’s businesses are deemed as essential services and were operating during the “Circuit Breaker” period,” they point out.

Meanwhile, with its history of successful acquisitions, Lee and Seet believe CSE may continue leverage on this strategy to grow further. 

To this end, CGS-CIMB and RHB are maintaining their ‘buy’ or ‘add’ calls on the stock at target prices of 55 cents and 54 cents respectively.

“We think CSE’s padded order backlog will cushion it in these tough times, and think it can maintain its dividend yield as long as cashflow generation is intact,” says See in explanation of her stance.

As at 11.09am, shares of CSE were down 0.5 cents or 1.02% to 48.5 cents.