SINGAPORE (Feb 27): CIMB is maintaining its “hold” call on CSE Global with a target price of 39 cents after the O&G engineering firm swung to a loss of $37.3 million in 4Q17 on one-off exceptional items.
The quarterly loss brings FY17’s loss to $45.1 million, compared to earnings of $21.2 million in FY16.
Despite the group’s disappointing results, CSE Global says it has won orders of about $381.9 million in FY17, a 33.3% y-o-y increase, driven by its O&G and infrastructure segments. Order backlog was at $175 million at end 4Q17.
"Management still guides for the flow of order wins to stabilise at current levels (about $75-85 million per quarter) in FY18, but larger greenfield O&G contract awards may only emerge in 2H18,” says Cezzane See in a Monday eport.
The group also expects Gross Profit Margin (GPM) of around 26% as the "new norm” as there is now higher weightage for onshore O&G work, which carry lower GPMs.
Still, See says CSE Global has to win large greenfield contracts, to see GPM recovery and maintain DPS at FY17’s level before the house can turn positive on the stock.
Given the better order wins ahead, the analyst lifts her estimates for the group’s FY18/FY19 revenue by 14.0%/14.2% and net profits by 11.7%/4.1%, while also introducing FY20 EPS forecast of 3.4 cents.
Due to the one-off $16.8 million settlement charge the group faced in 2Q17 and higher working capital to fund the current year’s projects, net cash position as at end-4Q17 narrowed to $15.5 million.
“Whilst management kept to its FY17 DPS guidance of 2.75 cents, we note that 0.25 cents was deemed a special dividend. Given the narrower net cash position, we reduce our FY18-19F DPS to 2.5 cents (versus 2.75 cents previously),” says See.
To recap, revenue for 4Q17 was 49.1% higher at $116.7 million, while cost of sales increased 72.7% to $87.8 million. This brings gross profit for 4Q17 to $28.9 million, 5.4% higher than $27.5 million a year ago.
However, other operating costs surged to $14.3 million, compared to $2.61 million a year ago.
The group also recorded a loss from other non-operating items of $29.1 million, compared to a gain of $0.30 million last year.
Loss per share came in at 8.75 cents in FY17 compared to earnings per share in FY16 of 4.11 cents.
See: CSE Global reports net loss of $37.3 mil in 4Q17 on one-off exceptional items
See also: Quarz Capital urges CSE Global to distribute $18 million out of net cash to shareholders
As at 10.33am, shares in CSE Global are trading at 38 cents or 1.08 times FY18 book with a dividend yield of 6.8%.
