A look at Singapore-based CSE Global’s web page and the first impression one might get is that its fortunes are tied to the oil and gas industry. But that is not the full picture, counters group managing director and CEO Lim Boon Kheng in an interview with The Edge Singapore.
For some years, the systems integrator — which provides automation, communication and environmental solutions for industrial platforms — has been actively diversifying its revenue streams, venturing into the infrastructure as well as mining and materials space.
While contracts from the oil and gas segment are still its largest earnings contributor, the proportion of revenue from this segment is now just a little over 50%, down from 90% around two decades ago, says Lim, who joined the company in 1999 as the group financial controller.
The impact of oil and gas prices has a much lesser impact on CSE Global. The second-largest contributor to its revenue is infrastructure projects, largely from governments and utility companies in Singapore, Australia, the UK and the US. Lim says this means that the major factor affecting this revenue stream is the level of government spending, not commodity prices.
Still, the increased oil prices have resulted in more business for CSE Global. Specifically, it sees pick up from the shale oil segment in the US, as well as the refinery and pipeline business. Lim says: “There is an uptick in orders that we can see in the last three or four quarters. The revenue side is also starting to see some benefit of the uptick in price.”
However, the pick up is not yet seen for deepwater projects: Lim says oil companies are willing to continue maintenance and smallscale upgrades to their platforms, but they are not likely to invest in large new deepwater projects, which are the big money makers for CSE Global.
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The difference it can mean for the company can be huge. Lim says contracts from deepwater platforms range between $15 million and $30 million each. In comparison, maintenance and upgrading projects range between $1 million and $5 million.
This difference could be seen in its full year FY2021 results ended Dec 31. CSE Global recorded a revenue of $468.7 million, down 6.8% y-o-y from FY2020, due to a decline in large project revenues, especially in the Americas region, no thanks to the pandemic which halted large swathes of the economy.
In the same FY2021, earnings dropped by almost half from $28 million to $15 million. Besides lower revenue, the company had to put up with higher operating costs of $115.7 million, which was $6.3 million higher y-o-y.
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However, there might be signs of a turnaround. For its most recent 1QFY2022 ended March, CSE Global managed to grow its revenue by 5.8% y-o-y to $117.6 million, driven by higher contribution from infrastructure projects in Asia Pacific region, particularly from utility and government customers in Australia.
Yet, this was slightly weighed down by the revenue from the energy sector, as revenues dropped 16% y-o-y due to lower large project revenues recognised in the Americas region. In 1QFY2022, CSE Global won orders worth $232.3 million, versus $106.2 million in the same period a year earlier, bringing its total orderbook to $344 million as of March 31. In spite of this, its share price has fallen despite the 1Q results. CSE’s share price stood at 45.5 cents as of June 14, down 8.08% year to date.
Supply woes
Like most engineering and manufacturing companies, CSE Global — which started out in 1985 as the engineering projects division of Chartered Electronics Industries, the electronics arm of Singapore Technologies — is also grappling with component shortages such as semiconductors, because of the Covid-19 pandemic and the ongoing war in Ukraine.
“In the past, we could just place the order, and within one month you will get most of the components in and you can just assemble in the factory. But today, sometimes you have to wait up to five months just for all the components and in a large system, unfortunately, you must have every component,” says Lim.
What CSE Global has been doing, is to try and confirm the specifications with their customers as early as possible so that orders can be placed quickly with the suppliers. For now, one way the company tries to make its business more resilient is to continue its strategy of diversifying into other non-oil and gas sectors.
‘Trade secret’
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The company has also entered the data centre space: On May 9, it announced it won a contract for the design, engineering, fabrication, installation and integration of complex electrical and mechanical systems for a data centre project. This will be slated for 2QFY2022 to 4QFY2023, and in combination with another major contract for an offshore facility in the Americas, will bring in about US$57.6 million ($78.1 million) for the company.
Meanwhile, other recent projects secured include field services orders for the wastewater market in the Americas and more orders of radio communication equipment and solutions by utility and renewables customers in Australia.
When asked if the company has the expertise to enter and sustain its business in so many different areas, Lim claims that is where CSE Global’s strength is, “to get the equipment to suit the customer requirements for that particular project. We’re not just a box pusher, but we value-add by doing some additional work. That is our trade secret.”
To him, skill sets that the company has applied in the oil and gas industry are transferable to other projects. Lim adds: “We have done data management solutions for oil and gas customers. We now do it for the data centre segment. New industry, new customer, but same skill set.”
This is also to ensure CSE Global’s survival, as technology will continue to evolve and competition will catch up with the company. “If you want to continue to do the same thing, then it’s going to be very, very difficult,” Lim adds. He also remembers when he wanted to diversify the company’s business into infrastructure, some customers and investors asked him why he wanted to do so — especially CSE Global was still doing so well in the oil and gas sector.
But as he reasons: “Just because you’re doing so well now doesn’t mean that you will be the same in the future. Going forward, we will continue to evolve. We will continue to use our engineering skill set to go into adjacent spaces, new spaces, or to enhance our existing space.”
Shareholders change, but strategy remains the same
While all these seem like there is a lot going on with the company, some investors may not see CSE Global’s presence in Singapore. The company is based and listed in Singapore, but derives 92% of its revenue from overseas markets.
CSE Global started in the engineering projects division of Chartered Electronics Industries, the electronics arm of Singapore Technologies. In 1997, a management buy-out was successfully concluded, before CSE Global’s public listing in February 1999.
In July 2020, Heliconia — a unit of Singapore sovereign wealth fund Temasek Holdings — became a substantial shareholder of CSE Global after it bought over a 25.03% stake from Malaysia-listed engineering services company Serba Dinamik. The $57.6 million transaction equates to 45 cents a share, which was also the price at which Serba Dinamik bought virtually all of its stake in April 2018.
Last May, the company was in the news after a dispute with its auditor KPMG burst into the public domain and a whole litany of legal actions ensued. On May 13 this year, after paying the RM16 million ($5 million) total in compounds issued by the Securities Commission Malaysia (SC), Serba Dinamik and its four top executives were given a discharge and acquittal. Even so, the market’s view of Serba Dinamik has dimmed significantly. Before the dispute with KPMG, its shares were trading at RM1.60. It closed at just 10.5 sen on June 14.
When asked if he felt like CSE Global “dodged a bullet,” having Heliconia be its substantial shareholder instead of Serba Dinamik, Lim replies: “I don’t know, honestly.” However, he says that when Serba Dinamik became CSE Global’s substantial shareholder in April 2018, the intention was for CSE Global to tap on Serba Dinamik to go into markets such as Indonesia, the Middle East and Central Asia.
He also adds that in the two years that Serba Dinamik was the substantial shareholder, CSE Global did not have any deals through Serba Dinamik or with Serba Dinamik. So, have there been any differences since Heliconia's investment? Not much, says Lim, although CSE Global did say immediately after the takeover that it hopes to leverage Heliconia’s network and expertise to support its growth plans.
In the two years since Heliconia came into the picture, Lim says that the company was looking to see how the two sides could work together in digitisation and in new government initiatives that they were trying to push for. However, not much has come out of this. Still, the board — on which Heliconia has two seats — is quite supportive of the company’s current strategy, which is “to diversify, and to try to strengthen our application of our engineering know-how in new areas,” Lim concludes.
