Analysts from CGS-CIMB Research, DBS Group Research and UOB Kay Hian have kept “add” or “buy” on CSE Global after the engineering firm reported 1.9% lower revenue y-o-y of $2.3 million for the 3QFY2021 ended September.
For the 3QFY2021, CSE Global’s EBITDA fell 19.2% y-o-y to $33.5 million, which stood in line with CGS-CIMB and UOB Kay Hian’s expectations.
Meanwhile, DBS deemed the firm’s EBITDA for the 3QFY2021 as slightly below expectations.
The company’s new order wins during the quarter increased 32% y-o-y and 15% q-o-q at $120 million, the highest level observed since the $127 million in 1QFY2020.
See: CSE Global wins $104.4 mil in new orders for the 2Q21
The strong recovery was mainly due to the new energy order wins of $74 million on the back of higher flow of work and the newly awarded power and electrification projects.
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CGS-CIMB analysts Kenneth Tan and Lim Siew Khee have kept their target price estimate at 61 cents, still based on 12 times CSE Global’s FY2022 price-to-earnings ratio (P/E).
“We like CSE Global for its business diversification and decent 5% average dividend yield. With Temasek being a 25% shareholder of CSE Global, we see collaboration opportunities between CSE Global and other Temasek-owned companies (including Singtel’s enterprise segment and ST Engineering’s urban solutions, in our view),” write the analysts in a Nov 11 report.
DBS Group Research analysts Chung Wei Le and Ling Lee King have slightly lowered their target price estimate to 60 cents from 61 cents.
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The new target price is based on 11.5 times FY2022 earnings or 0.7 standard deviation of its four-year historical mean.
They have also cut their earnings estimates for the FY2021/2022 by 16% and 6% respectively as the firm faces project disruptions due to the pandemic and supply chain issues.
“CSE Global is currently trading at a 9.7 times FY2022 P/E, which is -0.4 standard deviation below its four-year historical mean,” they write in a Nov 15 report.
“We believe this is an attractive entry opportunity for a growth stock with an FY2021-2023 earnings compound annual growth rate (CAGR) of 33% and a dividend yield of 5.4%,” they add.
Despite the missed expectations, Chung and Ling remain positive on CSE’s recovery as its new order wins continue to recover.
“We are also optimistic on CSE Global’s small acquisitions to enhance and strengthen its operations and recurring revenue stream as well as its pivot towards renewable energy projects (solar and wind). There is also potential for large contract wins in its Energy segment in FY2022,” they write.
CSE Global’s Infrastructure and Mining & Mineral segments remained resilient during Covid-19.
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To Chung and Ling, the former is expected to continue growing on higher government spending on infrastructure projects. The latter is also expected to remain sturdy amid higher commodity prices.
Finally, UOB Kay Hian analyst John Cheong has reduced his target price on CSE Global to 59 cents from 68 cents pegged to its mean P/E of 11.4 times FY2022 P/E. This is down from the 13 times FY2022 P/E, and 0.5 standard deviation above mean.
“[The lower target price] is to reflect the more cautious outlook on the oil and gas segment and potentially higher operating costs. Our target price implies a dividend yield of 4.7%,” he writes in a Nov 15 report.
“The market has been impacted by supply chain disruptions and travel restrictions due to the pandemic; capital spending remained measured in the energy sector and led to fewer large greenfield and flow projects in 3QFY2021 and foreseeably in the coming months.”
“Coupled with higher operating and sales costs, this further impacted CSE Global's performance in the American region and CSE Global expects similar challenges in the coming quarters. Nevertheless, increasing demand for digitalisation and enhancements in physical and cyber security has translated into a continuous, steady project pipeline in our infrastructure and mining & minerals sectors,” he adds.
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Nevertheless, Cheong expects the company to maintain its full-year dividend at 2.75 cents per share in the FY2021, translating to an above-average dividend yield of 5.3%, compared to the Straits Times Index’s 4.0%.
“We believe this is sustainable, given CSE Global’s strong operating cash flow and low net gearing,” he says.
As at 4.06pm, shares in CSE Global are trading 0.5 cent higher or 1% up at 50.5 cents.
