SINGAPORE (May 6): DBS Research Group is maintaining its “buy” call on oil, gas and telecommunications operator CSE Global, but at a revised target price of 54 cents. This is down 37% or 9 cents from its previous 65 cent call, analyst Ling Lee Keng says in a May 6 note.
The move follows expectations of a contraction in the group’s small oil and gas (O & G) contract renewals due to the protraction of the Covid-19 pandemic.
Ling had previously forecast that the health-turned-economic crisis would have minimal impact on the group oil & gas business.
However, she remains positive on CSE Global given its increase in order intake in 1Q20 ended March 30 to $127 million.
Of this, $87.8 million comes from its O & G sector, while $25.5 million is from its infrastructure operations and the remaining $13.9 million from the mining sector.
1Q20’s orders are a 46.6% surge from the $86 million worth of contracts secured in 1Q19, the group noted in a regulatory on May 4.
See : CSE Global wins $127.2 mil in total new orders for 1Q2020, up 46.6% y-o-y
At this level, CSE Global’s total order book was up 66.9% year-on-year to $302.7 million. This comes mainly from the $103.7 million large oil & gas contract won last October.
Despite the healthy order book, Ling expresses concerns over a possible drag from a protraction in oil prices.
“We initially did not expect the slump in oil prices to worsen and to persist for such an extended period. The Covid-19 pandemic has shocked the demand for oil through the closure of businesses and international borders,” she observes adding that this has been partially offset by cuts by the Organisation of Petroleum Exporting Countries (OPEC+) and shut-ins of oil wells.
As such, Ling says she is less optimistic about the group’s outlook for FY2020. “The protraction of the pandemic is likely to put off any new oil projects during this period and could weigh on CSE’s existing small contract renewals,” she muses.
In this vein, she is looking at total new order intake dropping 9.3% to $476 million for FY20F from the $525 million logged in FY19. Of this oil & gas orders are slated to hit $330 million (-10.7%), infrastructure wins to come in at $96 million (–3.9%) while mining and materials logs $50 million (-9.1%).
This translates to a FY20F/21F earnings cut of 8%/9%, Ling explains.
As at 11.33am, shares at CSE Global were up 20 cents or 5.06% to 42 cents.
