CSE Global upgraded by CGS CIMB on higher margins

CSE Global upgraded by CGS CIMB on higher margins

By: 
Samantha Chiew
14/05/18, 03:14 pm

SINGAPORE (May 14): CGS CIMB Securities is upgrading its recommendation on CSE Global to “add” from “hold” previously with an increased target price of 50 cents.

This came on the back of the group reporting a 90% jump in its 1Q18 earnings to $5.7 million, compared to $3.0 million in 1Q17.

Revenue for the quarter was 23.7% higher y-o-y at $92.2 million, attributed to broad based growth across all industry segments, with revenue from its Oil and Gas (O&G) and Infrastructure divisions climbing 23.3% and 24.0%, respectively.

See: CSE Global reports 90% jump in 1Q earnings to $5.7 mil on broad-based revenue growth

During the quarter, the group’s order win of $68 million was down by 41.6% y-o-y, due to the lack of greenfield order wins and some delay in its O&G and infrastructure segments to 2Q18.

The management guides for order wins to stabilise at $75 million per quarter in 9M18, but larger greenfield O&G contract awards may only emerge in the latter part of FY18. Order backlog was $148.6 million at end-1Q18.

Meanwhile, net cash position narrowed to $5.0 million as at end-1Q18, compared to $15.5 million at end-FY17, but management expects cash pile to increase later as there are several large projects that will reach billing milestones in 2Q-3Q18.

The management also believes gross profit margins (GPM) have stabilised given less competition in the global arena.

In a Thursday report, analyst Cezzane See says, “Hence, we lift our GPM to 26.8% p.a. (vs. 26.2-26.6% previously). We also lift our EBIT margin to 6.4% per annum (vs. 4.6-5% previously on account of better operating leverage). We trim FY18-20F revenue to be conservative given greenfield orders have yet to pick up. Overall, our FY18-20F EPS forecasts increase by 7.8-22.4%.”

On the other hand, the analyst believes that the group’s collaboration with its new shareholder opened its downstream O&G, power and utilities contracts from the Middle East and Malaysia, assisting with order book replenishment.

“We have turned more positive on CSE as margins seem to have improved. Moreover, with the current recovery, the company could be able to maintain its DPS of 2.75 cents,” says See.

As at 3.15pm, shares in CSE Global are trading 1 cent lower at 45 cents or 1.29 times FY18 book value with a dividend yield of 6.18%.

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