Rising oil prices and attractive dividend yield underpin UOB Kay Hian Research’s positive view for CSE Global, with analyst John Cheong upgrading the counter to ‘buy’ with a higher target price of 68 cents from 53 cents previously.
“We believe CSE Global (CSE) is well-positioned to leverage on opportunities in the recovering oil sector, making it a safe proxy for the rise in oil prices,” he writes in an April 7 research note.
Cheong notes that the West Texas Intermediate (WTI) benchmark has recovered 38% from an average of US$44 ($58.98) in 2H2020 to current levels between US$50 - US$66.
The price is supported by supply curbs by the Organization of the Petroleum Exporting Countries (Opec), cold weather that swept across the US, particularly Texas, and potential oil demand recovery in 2H2021 as vaccinations roll out globally.
See: OPEC faces seismic demand split as cartel plots next move
While CSE’s oil and gas order book was down 41% y-o-y in FY2020 ended December, Cheong points out this was partly due to the high base in 2019 and that the order intake for the segment rose 30% q-o-q in 4Q2020, signalling that the segment could be turning a corner.
Cheong is also bullish on CSE as its infrastructure and mining segment has remained resilient despite the pandemic, with its order book growing 21% and 22% y-o-y.
“Earnings momentum from these segments should be sustained with greater orders and a growing order book as CSE builds on its dominant position as a nationwide player in the two-way radio communication industry in Australia,” he says.
He also highlights that the last time the group secured a large greenfield project from the Singapore government was in that 4Q2018. Cheong believes there is potential scope for a sizeable infrastructure project win in the near term given the rise in infrastructure spending by the government.
His higher target price of 68 cents is pegged to a higher FY2022 P/E of 13 times. In addition, his FY2021 - FY2023 earnings forecasts have been raised to $23.1m (+1.8%), $26.6m (+7.4%) and $27.1m (+7.5%) respectively on upwards-adjusted order intake and margin assumptions.
Cheong expects CSE to maintain its full-year dividend per share at 2.75 cents for FY2021, translating to an above average yield of 5.1% compared to the Straits Times Index’s 3.6%.
“We believe this is sustainable given CSE’s strong operating cash flow and low net gearing,” he says.
He also notes the recent share buybacks by management amounting to 2.2 million shares since March underlines management’s confidence in the company.
Shares in CSE close flat at 56.5 cents on April 9.
