• Disposal of subsidiary for ~S$15m
• Earnings likely to remain resilient
• Forecasts unchanged; maintain HOLD

Net gain of ~S$2.2m arising from disposal of subsidiary

CSE Global Limited (CSE) recently disposed its 66% shareholding in a subsidiary, Power Diesel (PD), for ~S$15.5m. PD is mainly involved in the business of inspection, maintenance, repair and overhaul of diesel and marine engines/equipment on onboard vessels while CSE’s key focus is on system integration works on offshore platforms. We estimate that PD contributes annual revenue of about S$18-20m and annual PATMI of ~S$2m. Going forward, these contributions will cease following the completion of the disposal on 12 Jun. As at 31 Mar, the book value of PD is ~S$8.8m, while the net consideration from the sale after deducting all transaction costs and fee is ~S$11.0m. This results in a net gain of ~S$2.2m and will be recorded in 2Q15. However, note that the net gain at completion date (12 Jun) would be lower as CSE continues to account for profits from PD for the period up to the completion date.

No change in earnings outlook; stronger balance sheet

Even without contributions from PD going forward, we do not expect any change in CSE’s earnings outlook for FY15 and FY16. Management’s previous guidance of flat to 5% growth in FY15 PATMI remains unchanged. We believe management’s strategy is to look for and secure smaller projects amidst capital expenditure reduction of big projects by the big players is likely to help cushion the impact during this difficult period in the oil & gas (O&G) industry. A check with management also gives us the confidence that CSE is on track in terms of meeting its guidance. In fact, post disposal, we think the increase in cash holdings gives CSE even greater financial ability to acquire companies to further grow its business.

Keep forecasts unchanged; maintain HOLD

While we view this disposal positively as it results in deeper pockets for M&A activities, we prefer to remain cautious given the uncertain outlook of the O&G industry. As we were conservatively forecasting for flat FY15 PATMI and a modest 5% growth for FY16, we opt to keep our forecasts unchanged. Supported by a decent FY15 dividend yield of 4.4%, maintain HOLD with the same FV estimate of S$0.62.

Source: OCBC Research - 19 Jun 2015