CSE Global Limited’s (CSE) 2Q15 core PATMI came in flat, just up 0.4% YoY to S$8.1m, while revenue increased 3.8% to S$112.1m. Revenue was mainly driven by growth of 9.8% and 15.5% from the Americas and Europe/Middle East/Africa (EMEA) regions, respectively, but offset by a 6.1% decline from the Asia-Pacific region.

However, CSE’s 2Q15 gross margin declined 2.6ppt YoY to 26.6% due to higher revenue recognized from a large but lower gross margin greenfield project in Australia, which translates to a 15.4% YoY drop in 2Q15 EBIT to S$11.4m.

For 1H15, CSE’s revenue grew 8.2% YoY to S$217.7m driven by Americas and EMEA regions but higher operating expenses and lower gross margin led to a flat 0.6% growth in core PATMI to S$15.7m. This set of results missed our expectations with its 1H15 core PATMI forming only 43.9% of our FY15 forecast.

Despite the headwinds in the oil & gas industry, CSE continued to show resilience in its sales as 2Q15 new orders received rose 2.2% YoY to S$97.4m while outstanding orders as at end-2Q15 grew 22.1% to S$237.8m. Given its healthy outstanding order book and exposure to recurring brownfield projects, we believe earnings for the rest of FY15 are likely to remain resilient.

Pending a management briefing later, we maintain HOLD on CSE but place our FV of S$0.62 under review.

Source: OCBC Research - 13 Aug 2015