DBS Group Research analysts Chung Wei Le and Ling Lee Keng say that systems integrator CSE Global offers an “attractive entry opportunity”
“CSE is currently trading at 8.3x FY21F Price-to-Earnings, which is -0.8 Standard Deviation below its 4- year historical mean,” they explain in a Nov 13 note.
Cezzanne See, an analyst at CGS-CIMB Research Securities, agrees, adding that the systems at CSE are “intact”.
This follows the 26.4% year-on-year increase in its net profit to $20.2 million in the first nine months of the year.
It comes on the back of a 26.5% surge in revenue to $373.4 million, due to the full-year contributions from US-based telephone operator Volta and the commencement of two large oil & gas contracts.
See: CSE Global reports 11.6% decline in 3Q net profit to $5.1 mil on non-recurring divestment gain
“9M2020 earnings is in line with our expectations, and net profit formed 82% of our FY20F estimates,” say DBS’ Chung and Ling.
The duo estimate that – based on new and outstanding orders – revenue from the oil & gas segment had increased 32% year-on-year to $255 million, while that from the mining and minerals segment soared 48% to $40 million.
This translates to a 29.3% year-on-year increase in CSE’s overall EBIT to $27.3 million for the first nine months of the year.
Meanwhile, the recent 3Q2020 ended September saw CSE’s net profit plunge by 11.6% to $5.1 million due to a on-off divestment gain of its former subsidiary S3ID Group.
In this time, the company had won $91 million worth of orders, bringing its total order book for 9M2020 to $333.1 million.
Of this, orders from the oil & gas segment was down 21.6%, while that for infrastructure and minerals and mining grew by 26.8% and 51.9% respectively.
The EBIT margin of the oil & gas segment came under pressure following the implementation of pandemic-related procedures and lower flow business orders particularly in 3Q2020 the DBS analysts says.
By contrast, the EBIT margins for infrastructure and minerals mining “remained relatively stable,” they add.
Looking ahead, Chung, Ling and CGS-CIMB’s See reckon that CSE may well be nearing or past the worst with oil prices largely stabilizing at US$40/barrel of oil ($54/barrel of oil).
Still, the analysts reckon that CSE’s orderbook may take time to pick up.
Says See, “CSE expects fewer opportunities and lower prices in forward oil & gas orders but maintains that there have not been material project/order book cancellations and collectability issues thus far”.
“We think the oil & gas segment may see near-term sluggishness due to the low crude oil prices and the political uncertainties in America. However, a strong order backlog and continued diversification to infrastructure and minerals & mining industries could provide a cushion in these tough times”.
Even so, the analysts say the company offers investment merits such as the possibility of a 1.5 cent dividend payout at the end of the year – in line with what has given disbursed in previous years. This equates to a dividend yield of 6.1%.
To this end, they have maintained a “buy” and “add” call on the counter at a target price of 55 cents (DBS) and 60 cents (CGS-CIMB).
DBS’ call gives the counter a 23% upside from its 40-cent close on Nov 12, while that for CGS-CIMB’s is at 33.3%.
Shares of CSE Global closed flat at 45 cents on Nov 13.
