SINGAPORE (Oct 11): RHB Research is initiating a “buy” recommendation on CSE Global with a target price of 59 cents, as the group is poised to deliver CAGR of 16% over FY17-20.
CSE provides process control solutions, such as safety shutdown systems and fire & gas detection systems to oil & gas companies, forming 65% of its revenue.
The group operates in the Permian and Eagle Ford shale basins, which together with the Bakken field, account for 81% of total shale oil production in the US.
The group’s management has said that it intends to expand its operations organically and inorganically in the Permian and Eagle Ford basins, as well as venture into new locations.
In a Thursday report, analyst Lee Cai Ling says, “The potentially greater presence should underpin higher contract wins and in turn sustain earnings growth momentum, in our view. Further upside includes large greenfield contract wins when the projects pass the final investment decision (FID) stage.”
In addition, the group’s strong track record allows it to ride on the Smart Nation initiative in Singapore, as well as Australia’s A$75 billion infrastructure investment plan to expand its topline.
Currently, CSE is part of the NCS-MHI consortium, which recently won the deal for the next-generation ERP.
“We understand from management that it is bidding for several infrastructure projects that are worth $20-30 million,” says Lee.
The group has said that it is interested in acquisition targets to expand its geographical coverage, especially second tier cities in Australia. The analyst expects acquisitions to come in the near term with potential target sizes of up to $10 million, which could boost NPAT by up to 10%.
“With management eyeing an expansion in the oil & gas segment, coupled with growth opportunities within the infrastructure segment, and synergies via partnering with its new shareholder, Serba Dinamik, we believe the best is yet to come for CSE,” says Lim.
As at 11.12am, shares in CSE Global are trading at 46 cents or 1.3 times FY19 book with a dividend yield of 5.8%.
