Analysts are all cheering CSE Global after its “superb” set of results for the 1HFY2023 ended June 30.
On Aug 10, CSE Global posted earnings of $11.0 million for the six-month period, more than double that of the $4.5 million in earnings for the 1HFY2022.
The company also reported a record revenue of $349.3 million for the 1HFY2023, 33.2% higher y-o-y, thanks to broad-based growth in flow revenues across all of its geographical markets.
During the period, CSE Global’s order wins stood at a new high of $522 million.
CGS-CIMB upgrades to ‘add’
CGS-CIMB Research analysts Kenneth Tan and Lim Siew Khee have upgraded their call on CSE Global to “add” as they believe that the company’s clarity of earnings recovery has improved.
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The analysts have also raised their earnings estimates and order win estimates after CSE Global’s earnings surpassed their expectations at 63% of their full-year forecast.
For the FY2023 – FY2025, Tan and Lim raised their net profit estimates by 15% to 28% while their order wins were upped by 20% to 21%.
In addition, the analysts are expecting to see quicker margin improvement ahead for the company as they believe that the supply chain issues have likely eased at a quicker pace than previously anticipated.
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“We expect US Energy to remain profitable going forward, as CSE has mostly concluded the restructuring of its loss-making divisions. Strong year-to-date (ytd) infra order wins should also strengthen CSE’s margin profile, as such projects have historically yielded better ebit margins compared to other segments,” the analysts write.
“Taking into account our hiked order win assumptions and improving cost profile, we raise FY2023 – FY2025 ebit by 29% - 35%, with higher-margin infra being the main contributor ([of around] 70% of FY2023 – FY2025 ebit),” they add.
Further to their upgrade, Tan and Lim have upped their target price estimate to 54 cents from 45 cents previously, still based on 12x CY2024 P/E. CY refers to calendar year.
Strong infra order wins, large greenfield energy project wins and consistent margin improvement are upside risks while margin erosion from rising costs and a sharp decline in order wins are downside risks.
Maybank ups TP on ‘robust’ 1H
Maybank Securities analyst Jarick Seet has kept his “buy” call on CSE Global with a higher target price of 65 cents from 62 cents previously after CSE’s “superb” set of 1HFY2023 results.
In his report, Seet expects CSE’s margin improvement to continue despite the much higher interest expense of $4.7 million in the 1HFY2023 from $1.9 million a year ago due to the loans it took to complete the recent acquisitions, he says.
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“We expect a similarly strong 2HFY2023 performance and margins to continue to expand,” he adds.
On order wins, Seet believes that CSE is in a “sweet spot” to win contracts from multiple sectors. He adds that he remains “confident” that it should be able to secure contracts from the public infrastructure, data-centre related solutions and the oil and gas (O&G) space in the coming months.
“All in, we expect order wins for 3QFY2023 to surge to [over] $300 million from [over] $230 million in 2QFY2023,” says Seet. “We project FY2023 orders to reach $900 million by end-FY2023 with further near-term contract wins likely in coming months. These order wins should underpin our FY2024 earnings.”
Seet also expects CSE to maintain its final dividend at 1.5 cents in the 2HFY2023, pointing to a dividend yield of 5.9% for the FY2023, which he deems as “fairly attractive” despite the additional debt CSE took on and the higher finance costs it is paying.
“We think that the debt will eventually be paid down slowly over the years and its historical dividend pay-out should be sustainable,” he says.
“We think the worst is over for CSE Global and 1HFY2023 substantiates our bullish view towards a multi-year upcycle. CSE Global offers a unique opportunity to ride the upcycle in attractive growth areas, accompanied by a sustainable 2.75-cent pay out, representing a 5.9% dividend yield,” he adds. “It is also trading at an undemanding valuation of 10.6x FY2024 P/E, as compared to peers at 16.7x P/E.”
CSE is Seet’s top pick in the small- and mid-cap space.
As at 12.07pm, shares in CSE Global are trading flat at 46.5 cents.
