SINGAPORE (Sept 2): Despite macroeconomic uncertainties that continue to plague the industry sectors it operates in, CSE Global says it is confident of stronger earnings performance and sustained order intake in the second half of FY19.
The group saw its earnings grow 3.9% to $4.5 million for the 2Q19 ended June on the back of higher revenue. This brings earnings for 1H19 to $10.2 million, some 1.9% higher than a year ago.
2Q19 revenue rose 8.4% to $99.9 million, led by strong growth in the Asia Pacific market.
The Asia Pacific region, which accounts for more than a third of CSE’s total revenue, recorded a 23.3% growth in revenues to $37.8 million, due to higher recognition of revenues for projects in the mining sector.
However, EBIT only rose by 5.7% year-on-year, resulting from lower profitability for these projects.
Meanwhile, the Americas region registered steady growth of 2.1% to $59.8 million during the quarter, mainly attributed to higher time and material revenues achieved.
However, the group says conditions in the industry sectors which it operates continue to remain uncertain.
In particular, CSE is facing a dearth of investments in large greenfield projects as its customers remain focused on cost control and cash flow generation amid the uncertainties.
Nonetheless, the group says it expects to see a steady flow of smaller projects arising from its existing customer installed base.
Lee Cai Ling, an analyst at RHB Group Research, notes that CSE’s outstanding orderbook stood at $188.1 million as at end-June – the highest in the six quarters.
“We remain cautiously optimistic on this counter as its orderbook continues to grow,” Lee says. “Order intake increased by 22.6% to $193.9 million in 1H19 and flow business remained strong.”
“Despite 1H19 results slightly missing estimates, we are heartened to see that topline growth is back on track,” she adds.
RHB is keeping its “buy” call on CSE with an unchanged target price of 61 cents, implying a price-to-earnings (P/E) ratio of 13.7 times for FY19F.
Likewise, CGS-CIMB Research is keeping its “add” recommendation on CSE with an unchanged target price of 60 cents.
“CSE remains our preferred small-cap O&G pick due to its healthy balance sheet, sustained earnings growth, net cash position, and secure dividend payout,” says analyst Cezzane See in a report on Aug 28.
In addition to the strong order intake, See notes that CSE has made three strategic acquisitions so far this year. Two of these are in the communications space in the UK and Australia, and the third is in onshore shale.
“Post the three acquisitions year-to-date, CSE said it is still on the lookout for more value-accretive and strategic buys,” See says.
“A stable business, strong balance sheet and dividend yield of close to 6% make CSE one of our favourite small-cap stocks,” she adds.
As at 11.52am, shares in CSE are trading half a cent lower at 43.5 cents.
According to RHB valuations, it is currently trading at 10x FY19F P/E with an attractive dividend yield of 6.3%.
