• FY14 results within expectations
• Earnings remain resilient
• Lower FV; maintain HOLD

FY14 results met our expectations

CSE Global Limited’s (CSE) FY14 results came in within our expectations. For 4Q14, CSE reported a 59.3% YoY jump in core PATMI to S$10.4m despite a 6.8% decline in revenue to S$120.3m. And for FY14, core PATMI jumped 16.4% to S$35.4m on the back of a 4.3% increase in revenue to S$433.8m. Its FY14 revenue and core PATMI formed 104.1% and 103.1% of our forecasts, respectively. Full-year revenue growth was mainly driven by Asia-Pacific and the Americas regions, but partially offset by weakness in Europe/Middle East/Africa market. Better operating margins and large decline in finance expenses contributed to the improvement in FY14 core PATMI. New orders received for FY14 grew 27.3% to S$461.6m, while outstanding orders at the end of the FY14 stood at S$255.0m (end FY13: S$227.2m). The main reason for the jump in new orders received is due to renewal of the multi-year contract for maintenance of the ERP system in Singapore.

Expects earnings to remain resilient

Although we believe CSE will see increased competition for greenfield projects in FY15 as the plunge in oil prices had resulted in the reduction of capex announced recently by oil and gas (O&G) majors, we think earnings will remain resilient as a result of high exposure to recurring maintenance jobs. We forecast these brownfield jobs to contribute ~S$60.0m per quarter. Evident in its strong outstanding orders, CSE managed to secure a greenfield project in the Gulf of Mexico worth ~S$20m in 4Q14, which is expected to be recognized in FY16. As a result of the uncertainties in O&G industry, management cut its growth target for its core PAT from 10-15% to flat or no growth in FY15. Management also stated they are confident of retaining existing customers and will focus CSE’s resources on doing so.

Introduce FY16 forecasts; maintain HOLD

With the updated growth guidance, strongerthan-expected ending order book and slight erosion in margins (i.e. <2%), we raise our FY15 revenue forecast by 2.1% but cut our PATMI projection by 8.9%. We forecast FY15 and FY16 core PATMI to grow 0.6% and 5.4%, respectively. Consequently, our FV drops from S$0.68 to S$0.62 (based on 9x FY15F P/E). Supported by a decent FY15 dividend yield of 4.7%, maintain HOLD.

Source: OCBC Research - 2 Mar 2015