• Initiating coverage with a BUY and SGD0.58 TP, 27% upside with c.6% yield. We like CSE Global for its exposure to global growth and green energy across diversified segments. We forecast FY23-26 earnings CAGR of 16% driven by its current strong orderbook, especially the electrification segment and acquisitions in the communications segment. The stock is trading at a compelling c.10x FY25F P/E – below the peer average of 20x. Our TP is pegged to 13x FY25F P/E, a discount to peers.

• Exposure to green energy and global growth across diversified segments. CSE is a systems integrator providing electrification, communications, and automation solutions, offering exposure on green energy such as renewable energy (RE) and EV infrastructure, critical communications and infrastructure development across the US, UK, Singapore, Australia, and New Zealand.

• US electrification market forecasted at 9.2% CAGR. According to Precedence Research, the US electrification market is forecasted at USD30.28bn in 2024 and is projected to be USD72.94bn in 2034, growing at a 9.2% CAGR during the forecast period. Drivers include green energy adoption leading to electrical infrastructure development for electrification systems and infrastructure where CSE is a beneficiary.

• Driven by infrastructure development... We see growth driven by the electrification and communications segments, with the automation segment’s outlook remaining stable. The electrification segment is driven by infrastructure and RE development in towns and cities, where there is increasing demand for electricity due to digitisation, IT and automation, more data centres (DCs), adoption of EV, more efficient utility installation, etc, which drives more power grid electrification projects.

• and supported by acquisitions. Growth in the communications segment will be supplemented through acquisitions in the US, where it is looking to increase its contribution. CSE’s critical communications business is present in the UK, US, Australia & New Zealand, and Singapore. It is looking to expand globally and growing its US market further.

• Robust orderbook of SGD634m as at Sep 2024, while its order intake continued to be strong at SGD565m. CSE typically recognises 50-150% of the previous year’s orderbook as revenue.

• Key downside risks include unforeseen project cost overruns and arbitration by customers for failure to deliver its services, which can potentially dampen earnings and margins. As CSE’s ESG score is 3.0 out of 4 – below our 3.1 country median – we apply a 2% discount to our intrinsic value.

Source: RHB Securities Research - 29 Nov 2024