Maybank Securities analyst Jarick Seet has initiated a “buy” call on CSE Global with a target price of 62 cents, representing an upside of 46% to CSE’s share price of 45 cents as at Seet’s report on July 24.
Seet’s target price is pegged to a P/E ratio of 17x on CSE’s blended FY2023/FY2024 earnings.
To the analyst, the stock is now at an inflection, with its profitability estimated to surge some 250% y-o-y in the FY2023 on the oil & gas (O&G) upcycle.
“We think the worst is over for CSE global and 1HFY2023 should be a strong inflection point 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 6.2% dividend yield,” Seet writes.
“It is also trading at an undemanding valuation of 13.7x FY2023E P/E, as compared to peers at 22.3x P/E,” he adds.
Corporate share-buybacks are also a possibility for this “undervalued” counter, he continues.
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CSE operates across three segments – energy, infrastructure and mining & minerals.
Its energy segment saw revenue increase by 22% y-o-y to $71 million during the 1QFY2023 ended March 31.
This is likely to grow in the 2HFY2023 and the years ahead as the company benefits from more O&G projects on the back of strong global O&G demand, notes Seet.
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“Years of under-investment since the oil-price crash in 2015/16 means that capital expenditure (capex) is badly needed in the near future,” he points out.
The strong demand for data centres and infrastructure projects in Singapore and Australia is also likely to lead to much-higher earnings for the company during this FY.
The company’s strategic move to diversify from its O&G business to data centres is a win in Seet’s book.
The move has also proved to be profitable with CSE securing large multinational technology giants such as FANGS – or Facebook (now Meta), Amazon, Apple, Netflix and Google (now Alphabet) – as customers, the analyst notes.
He adds that the company is likely to secure more projects on the data-centre front in the US as the need for such facilities continue to grow.
“Currently, this segment contributes below 10% of revenue but we expect its contribution to surge to 30% in the next three to five years,” he says.
Finally, CSE’s orderbook is likely to grow with the company being in a “sweet spot” to win contracts from multiple sectors.
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“We remain confident that in the coming months, it should be able to secure some contracts for public infrastructure like water treatment facilities as well as more data-centre related solutions,” says Seet. “All in all, we expect the current orderbook of $480 million to surge to $900 million by the end of FY2023 with near-term contract wins.”
CSE Global will be releasing its results on Aug 10.
As at 2.35pm, shares in CSE Global are trading flat at 45.5 cents.
