DBS Group Research is maintaining its “buy” call on oil, gas and telecommunications operator CSE Global, but at a revised target price of 57 cents.
This is down 4 cents from its previous 61 cent call, and is believed to give the counter a 27% upside from its 46 cent price on Oct 22, analyst Ling Lee Keng says in an Oct 23 note.
The move follows the brokerage’s reduction of CSE’s FY20/21F revenue by 10.3%/7.4% due to the weaker than expected new order intake for its oil & gas business in 3Q2020 ended September.
This translates to a -16%/-9% lower earnings for FY20/21F, explains Ling.
During 3Q2020, CSE secured $91.0 million worth of new orders, down 41.7% from what it secured in the previous year.
See also: CSE Global secures $91 mil in new orders for 3Q2020
The company’s overall new order intake for the first nine months of the year accounts for 73.6% of Ling’s prediction for the full year.
Calling this “below expectations”, she says the weakness comes from – a 58.6% year-on-year plunge in new orders for its oil & gas operations due to its weak operating climate.
She notes that 3Q19 was a high base as its new order intake was exceptionally higher following the one-time consolidation of the intake from its acquisition of the US-based Volta Industries for some $20 – 25 million.
At present CSE’s order backlog stood at $267.0 million in 3Q2020 due to an increase in its oil & gas and mining and minerals segments.
With this in mind, Ling estimates the company’s revenue for the quarter to inch up 5.7% year-on-year to $118 million.
“We believe the worst is over,” stresses Ling.
“As governments gradually eased restrictions, allowing consumers to spend and businesses to resume, oil demand bottomed out in May and has been increasing since. In addition, supply rationalisation from oil producers and OPEC+’s accommodation have quickened the oil market’s demand-supply rebalance,” she adds.
At present, CSE is trading at 8.2x FY21F price-to-earnings, which is -0.8 standard deviation points below its 4-year historical mean.
This is an “undemanding valuation” says Ling who remains positive on the counter.
As at 11.05am, shares in CSE Global were up 0.5 cents or 1.09% to 46.5 cents.
