KGI Securities analyst Joel Ng has upgraded CSE Global from ‘neutral’ to ‘outperform’ with a higher target price of 61 cents from 52 cents previously.
The upgrade comes as Ng views CSE accelerating its transformation into a key infrastructure player in Singapore and Australia, while Temasek’s backing as the new major shareholder of CSE via its unit Heliconia Capital Management will provide “favourable tailwind to new project wins”.
Ng highlights that while CSE was originally focused on oil and gas (O&G), its diversification into infrastructure projects in Australia and Singapore is starting to pay off.
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“In our view, the group’s capabilities as an asset-light system integrator in key growth/recovery industries places it in a sweet spot when global economic growth starts to pick up in the second half of 2021,” he says.
Ng notes that the surge in the commodities sector on the back of supply-demand mismatch as well as potential fiscal stimulus for green initiatives has driven metal and agricultural prices to trade at multi-year highs, which bodes well for CSE’s Australian infrastructure projects.
For Singapore, CSE has highlighted infrastructure projects in sectors such as security and transportation there as a key focus in 2021. Ng expects major projects in this segment to be a key earnings catalyst for CSE and improve its diversification away from O&G.
“Having Heliconia Capital Management, a unit of Temasek Holdings, as the new major shareholder of CSE, strengthens the case for more infrastructure-related projects in Singapore,” he adds.
While O&G still made up more than half of CSE’s revenues in the last two years, Ng points out the group has an equal mix of offshore and onshore projects and anticipates the recovery of O&G projects in the near term.
“Offshore project commitments are expected to reach a new record of almost 600 projects in the next five years, according to Rystad Energy, driven partly by better cost structure, and underinvestment over the last few years,” he says.
Overall, Ng says that the commodities upcycle and recovery in O&G should support CSE’s ability to maintain its dividend yield of 5%, above the industry average.
His higher target price of 61 cents is based on a P/E of 12 times for FY2021 ending December 2021. “Valuations are currently attractive at 10-9 times forward P/E while earnings per share growth could surprise on the upside if/when it wins increasingly higher-margin infrastructure projects,” he adds.
Shares in CSE closed flat at 54.5 cents on March 17.
