DBS Group Research is maintaining its ‘buy’ call on systems integrator CSE Global at a revised target price of 61 cents.
This is down 3 cents from its previous 63 cent call, but is expected to give the counter an 18% upside from its 51.5 cent price, analysts Chung Wei Le and Ling Lee Keng write in an Aug 13 note.
“We cut FY21/22 earnings by 26%/19% respectively mainly due to our lowered optimism on new order wins for its energy segment. We roll forward our P/E peg from FY21 to FY22 and our target price is based on 11.0x (+1 SD of its four-year historical mean) FY22 earnings,” they add.
Chung and Ling’s conservative stance on the group’s energy segment stems from its continued weakness.
The segment posted a 21.6% y-o-y decline in revenue to $140.3 million in 1HFY21 following delays in projects. A drag also came from volatile energy prices and the severe winter and spread of coronavirus infections in the Americas region.
See: CSE Global's 1HFY2021 earnings down by a third, plans dividend of 1.25 cents
“Oil & gas is not the most popular right now,” mull Chung and Ling.
“If this were in the past, the quick run up in oil prices would have triggered a boom in the US oil industry. However, this time, despite higher oil prices, oil production (in the Gulf of Mexico, Permian Basin, and Eagle Ford) continued to lag behind,” they elaborate.
Against this backdrop US oil producers are seemingly more cautious of increasing oil production.
However, the duo are positive on the group’s small acquisitions, for they are expected to strengthen its operations and recurring revenue stream. This bodes well for the group’s pivot towards renewable energy projects mainly in solar and wind.
Meanwhile, things are looking up for CSE Global’s infrastructure and mining & mineral segments.
“These two segments remained resilient despite the pandemic,” say Chung and Ling.
Revenue from the infrastructure segment was up 40% to $70.3 million in 1HFY21 thanks to higher orders of radio communication and solutions. This came from a strong pipeline of projects across all key geographies in Australia, the UK and the US.
Meanwhile, revenue from mining & minerals was down 9.7% y-o-y to $23.9 million in 1HFY21 as two new greenfield projects were awarded last year.
Going forward, Chung and Ling expect the infrastructure segment to continue growing on the back of higher government spending on infrastructure projects.
The add that the mining & minerals segment is also slated to remain sturdy amidst higher commodity prices.
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Their comments come despite the 13.0% y-o-y decline in CSE Global’s 1HFY21 new order intake to $210.6 million.
This was largely attributable to weakness in the energy segment (-24.9% y-o-y to $106.4 million) due to delays in project awards and the slower-than-expected recovery.
New orders for the infrastructure segment continued to grow (+25.1% to $79.7 million) while orders under the mining & minerals segment remained stable excluding last year’s two new greenfield projects (-33.4% y-o-y to $24.5 million).
Shares in CSE Global closed down a cent or 1.92% at 51 cents on Aug 16.
Cover image: file photo
