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Analysts from CGS-CIMB Research, DBS Group Research and UOB Kay Hian have kept “add” and “buy” on CSE Global despite the group’s lower overall revenue for the 1QFY2021 ended March.
See: CSE Global reports 22.3% lower EBITDA of $10 mil in 1Q business update
To CGS-CIMB analysts Cezzane See and Kenneth Tan, the lower revenue, which were hurt by winter storms in the US, stood in line with expectations, as the quarter saw fewer contract executions.
To them, the executions should “pick up” in the coming quarters.
Despite the seasonal weakness, CSE Global’s order intake of $106 million in the 1QFY2021 remained “healthy”, with the bulk of orders coming in from the energy sector at $57 million.
CSE Global’s management also indicated that it remained “cautiously optimistic” on its order outlook as it hopes to secure greenfield projects over the rest of the FY2021.
On this, See and Tan have kept their target price estimate of 63 cents, still pegged to 12 times FY2022 price-to-earnings (P/E), which is close to the group’s 2015-2020 historical average.
“Despite uncertainties from Covid-19, we expect a better second-half performance as deferred projects from 1QFY2021 are gradually executed,” they write in a May 20 report.
“Going forward, the energy segment could see gradual recovery as oil price recovers while the infrastructure segment should continue to be bolstered by orders from CSE’s key markets (Singapore and Australia),” they add.
DBS analysts Chung Wei Le and Ling Lee Keng are also optimistic on CSE Global’s recovery.
They have, however, trimmed their target price estimate on CSE Global to 63 cents from 64 cents.
They have also lowered their earnings estimates for the FY2021 and FY2022 by 11% and 3% respectively due to the weather conditions in the US, which are impacting the group’s energy segment.
The lower target price is pegged to 11.1 times (+1 standard deviation or s.d. of its four-year average) of its FY2021 earnings.
That said, the analysts deem the counter’s current share price as an “attractive entry opportunity for a growth stock with a recovery story”.
“CSE is currently trading at 9.3 times FY2021 P/E, which is - 0.2 SD below its 4-year historical mean,” they write in a May 21 report.
“[CSE’s] dividend yield is attractive at 5.2%,” they add.
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Looking ahead, Chung and Ling believe that the higher oil prices should translate into higher order wins.
“The West Texas Intermediate (WTI) crude oil is currently trading at US$60-65 ($79.88-$86.54) per barrel, up more than 50% from its average trading range in 2HFY2020. We believe that the higher and stable oil prices will entice oil producers to increase their production, resulting in more new order wins for CSE,” write the analysts from DBS.
Chung and Ling also expect CSE Global’s Infrastructure and Mining & Mineral segment to continue delivering growth as governments increase their spending on projects, and as commodity projects increase.
The latter should spur on more mining projects in Australia, say the analysts.
UOB Kay Hian analyst John Cheong has kept his target price of 68 cents despite the group's 1QFY2021 performance coming in below his expectations at 21% of his full-year estimates.
That said, he expects the group to do better in the coming quarters ahead from delayed revenue recognition.
Revenue from the group's Infrastructure segment, the group's second-largest segment, saw 21.0% growth y-o-y, mainly driven by higher spending in transport infrastructure and electrical protection for utilities, particularly in Australia, Singapore and the UK. The group, says Cheong, continues to be a "strong pillar" for the group.
For the FY2021, Cheong expects the group to maintain its full-year dividend at 2.75 cents per share in the FY2021, translating into an "above-average" dividend yield of 5.3%, compared to the benchmark Straits Times Index's (STI) 4%.
"We believe this is sustainable, given CSE’s strong operating cash flow and low net gearing," he says.
Shares in CSE Global closed flat at 51.5 cents or 1.3 times P/B, according to DBS’s estimates.
