CGS-CIMB Research analyst Kenneth Tan has maintained his “buy” call and target price of 61 cents on systems integrator CSE Global as he forecasts a potential boost to energy order wins from damage inflicted by Hurricane Ida in the US.
In a Sept 3 report, Tan writes that when Ida hit the Gulf of Mexico and the US state of Louisiana, it shut down about 95% of oil and gas production in the region, and caused significant damage to the state’s infrastructure.
He notes that the US Federal Emergency Management Agency (FEMA) has cited Ida as one of the most catastrophic hurricanes to ever make landfall in the US.
“While we expect slight delays in project execution (Gulf of Mexico and Louisiana), we think that offshore operations will resume quickly upon easing of conditions. In fact, we see potential for more flow energy order wins as companies race to repair damage inflicted by the storm,” Tan writes.
As such, he thinks this should support 2HFY2021 energy order wins, which typically pick up in 4Q after major hurricanes in late 3Q or early 4Q.
In 1HFY2021, CSE already won $80 million of new orders in infrastructure, driven by higher Australia government contracts and projects across Singapore, the UK and the US.
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Tan highlights, “Supported by a record-high infrastructure order book of $133 million, we see the potential for order wins to pick up further in 2HFY2021 from Singapore government contracts, and increased infrastructure spending in Australia.”
With this, CSE should see improvements in its overall profit margin as infrastructure contracts have higher margins (5-year historical average: 14%).
Furthermore, Tan notes that with Temasek being a 25% shareholder of CSE, there could be potential collaboration opportunities between CSE and other Temasek-owned companies.
Some potential opportunities, he thinks, include Singtel’s guidance of $2.4 billion capex in FY2022, SMRT’s rail expansion and ST Engineering’s urban solutions.
Tan also likes the fact that CSE’s order book remains “healthy” at $212 million in 1HFY2021 vs $236 million at end-FY2020.
The current infrastructure order book of $133 million is a record high in CSE’s operating history, and he also likes the current dividend yield of about 6%, calling it “very attractive”.
CSE trades at an undemanding 10x FY2022F price to earnings ratio (P/E), or at -0.5 standard deviation of its five-year mean, which presents a good buying opportunity.
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Re-rating catalysts, Tan says, include higher-than-expected order wins, while downside risks are lower order wins and a slower-than-expected recovery in the energy segment.
As at 2.38pm, shares of CSE Global traded at 48 cents, with a forecasted FY2021 price to book ratio of 1.25 and dividend yield of 5.73%.
