IT solutions company CSE Global’s strong orderbook is hampered by supply chain constraints, impacting its earnings for 1HFY2022.
In a June 15 note, UOB Kay Hian Research analyst John Cheong is maintaining “hold” on CSE Global with an unchanged target price of 44 cents, which represents a downside of 5.5%.
That said, Cheong thinks CSE Global’s dividend yield is “attractive” at around 6.0%. “We expect the group to maintain its full-year dividend at 2.75 cents/share for 2022, translating to an above-average dividend yield of 6.0% vs the FSSTI’s of around 4.0%.”
CSE Global Limited provides systems integration and information technology solutions, computer network systems, and industrial automation. The company also designs, manufactures, and installs management information systems. CSE Global develops, manufactures, and sells electronic and micro-processor monitoring equipment.
CSE Global’s order intake surged by 118.8% y-o-y to $232.3 million in 1QFY2022, attributed to a major contract secured to provide engineering solutions for the data centre market and higher field services orders for the wastewater market in the Americas region, as well as stronger orders of radio communication equipment and solutions led by utility and renewables customers in Australia.
In total, these boosted CSE’s orderbook to $344 million, up 49% y-o-y. ”The order win is ahead of our expectation of $520 million in order wins for 2022, but the order could be lumpy in nature as it is a large project,” writes Cheong.
See also: Test debug host entity
Cheong also notes a marginal growth in revenue. “CSE’s revenue was 5.8% higher y-o-y at $117.6 million in 1QFY2022, attributable to growth in infrastructure projects in the Asia Pacific region, particularly from utility and government customers in Australia.”
The energy sector’s revenue fell 16.0% y-o-y, mainly attributable to lower large project revenue recognised in the Americas region.
Meanwhile, infrastructure revenue improved 56.6% y-o-y, mainly driven by higher revenue contributions across all key geographies of Australia, Singapore, the UK and the US due to increased investments in public and critical infrastructure.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
CSE’s mining and minerals’ revenue increased by 3.8% y-o-y, as projects started to see more progress due to the easing of Covid-19 restrictions, compared to 1QFY2021 which saw delays in project execution due to poor weather conditions and Covid-19 disruptions.
Scuttled deliveries
Deliveries of orders remain challenging due to supply chain constraints, writes Cheong, which have affected some of CSE’s current projects. “Delivery of equipment was delayed and longer lead time is needed for purchases of new equipment or components. These operational challenges will continue to weigh on the financial performance of the group in 1HFY2022, but this is expected to improve in 2HFY2022.”
He adds: “These challenges could impact CSE’s margins due to higher operational costs which include materials and wages.”
The current global economic outlook is impacted by supply chain disruptions and inflationary pressures, which will continue to create uncertainty, says Cheong.
While there was a lack of large greenfield projects in the energy sector, CSE continues to see stable financial performance in the Infrastructure and mining and minerals sectors, supported by a steady stream of projects arising from requirements in digitalisation and enhancements in physical and cyber security.
Despite the operational challenges brought about by the supply chain disruption, CSE will continue to execute the $344 million orderbook as at 1QFY2022, writes Cheong.
As at 10.39am, shares in CSE Global are trading 1 cent lower, or 2.15% down, at 45.5 cents.
Photo: Albert Chua/The Edge Singapore
