CFA Society Singapore
SINGAPORE (Mar 26): UOB Kay Hian continues to rate CSE Global a “buy” with a target price of 62 cents.
This came on the back of the group announcing on Mar 22 that it will be acquiring a new subsidiary – RCS Telecommunications – for of A$11.64 million ($11.26 million), which represents approximately 1.64 times RCS’s NTA.
The acquisition of 100% of the issued share capital of the Australian limited liability company was done by the group’s wholly-owned subsidiary, CSE Crosscom.
This is CSE’s second acquisition this year and upon completion of the acquisition, RSC will become an indirect wholly-owned subsidiary of the group.
RSC is principally engaged in communications networking and 2-way radio systems design & implementation.
In a Tuesday report, analyst Yeo Hai Wei says, “While the acquisition is not expected to have a material impact on CSE’s FY19F EPS, we view it positively and believe this strategic acquisition strengthens CSE’s grip on the Australian market.”
Prior to this acquisition, the group announced the incorporation of Converge Resources in Texas, USA. Converge will be 70%-owned by CSE.
While immediate contributions from this subsidiary is unlikely to be material, the analyst is positive about the long-run prospects of CSE’s strategy of combining traditional solutions with technology to offer clients a seamlessly integrated and comprehensive suite of services.
On the other hand, the group has been conducting share buybacks at between 52-54 cents in Mar 2019, indicating management’s confidence in the company.
“The cumulative number of shares purchased rose to 11,177,500 or 2.17% of issued shares less treasury shares. While treasury shares are typically used for employee stock option programme, we do not rule out the possibility that the accumulation of treasury shares could be in anticipation of a share plus cash deal,” says Yeo.
Furthermore, the group is a potential beneficiary of smart nation initiatives and digital defence as its association as a Singapore company with a history of being part of Chartered Electronics Industries, the electronics arm of Singapore Technologies, makes it a suitable candidate for projects in this space.
“We think the announced government contract wins involving telecommunications and security systems support this thesis and may further bolster CSE’s credentials for future project tenders,” adds Yeo.
As at 11.55am, shares in CSE Global are trading at 54 cents or 1.5 times FY19 book with a dividend yield of 5.1%.