Excerpts from UOBKayHian report
CSE Global (SGX: 544)
- CSE Global reported a strong order intake of S$232m (+119% yoy) in 1Q22 due to a major contract for the data-centre and wastewater markets in the Americas region, bringing its orderbook to S$344m (+49% yoy).
- However, CSE continued to face supply chain constraints which delayed the delivery of new equipment or components. These challenges will continue to impact CSE’s earnings for 1H22.
Maintain HOLD and target price of S$0.44.
CSE Global strong order intake
CSE Global’s (CSE) order intake surged by 118.8% yoy to S$232.3m. This is 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
There is also stronger orders of radio communication equipment and solutions led by utility and renewables customers in Australia. In total, these boosted CSE’s orderbook to S$344m (+49% yoy).
The order win is ahead of our expectation of S$520m in order wins for 2022, but the order could be lumpy in nature as it is a large project.
Marginal growth in revenue
CSE’s revenue was 5.8% higher yoy at S$117.6m in 1Q22, 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% yoy, mainly attributable to lower large project revenue recognised in the Americas region.
Infrastructure revenue improved 56.6% yoy, 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.
Mining & Minerals’ revenue increased by 3.8% yoy, as projects started to see more progress due to the easing of COVID-19 restrictions, compared to 1Q21 which saw delays in project execution due to poor weather conditions and COVID-19 disruptions.
Deliveries of orders remain challenging due to supply chain constraints
CSE has continued to face supply chain constraints, which have affected some of its 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 1H22, but this is expected to improve in 2H22. These challenges could impact CSE’s margins due to higher operational costs which include materials and wages.
Supply chain challenges and inflationary pressure
Cautious on supply chain challenges and inflationary pressure. The current global economic outlook is impacted by supply chain disruptions and inflationary pressures, which will continue to create uncertainty.
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 & Minerals sectors
It is also supported by a steady stream of projects arising from requirements in digitalization and enhancements in physical and cyber security.
Despite the operational challenges brought about by the supply chain disruption, CSE will continue to execute the S$344m orderbook as at 1Q22.
It will also focus on improving its core business and drive its expansion into new geographical markets for Energy, Infrastructure and Mining & Minerals sectors with a view to securing additional order opportunities.
We expect the group to maintain its full year dividend at 2.75 S cents/share for 2022, translating to an above-average dividend yield of 6.0% vs the FSSTI’s of around 4.0%.
Maintain HOLD and PE-based target price of S$0.44, pegged to 13x 2022F PE (+1SD above mean). Our target price implies a dividend yield of 6.3%.