CSE Global Limited’s (CSE) 1Q16 PATMI from continuing operations declined 20.9% YoY to S$5.5m on the back of a 16.5% drop in revenue to S$84.2m due to lower contributions from Asia-Pacific (-25.4%) and the Americas (-19.4%) regions, but offset by 37.7% growth in Europe/Middle-East/Africa (EMEA) region.

CSE’s 1Q16 gross margin from continuing operations was largely stable at 28.6%. However, excluding one-off transaction expenses relating to new acquisitions, 1Q16 core PATMI declined by a lower 11.9% YoY to S$6.1m, and formed 22.0% of our FY16 forecasts. 1Q16 EBIT declined 36.2% YoY to S$6.4m, dragged by deferral of Australian projects, weaker AUD against SGD, as well as lower gross margins achieved in the Americas and EMEA regions.

With uncertainty over outlook of the oil & gas industry, new orders received in 1Q16 dropped 23.8% to S$74.9m while outstanding orders decreased 28.9% to S$179.6m. CSE also recorded strong operating cash inflow of S$19.7m in 1Q16 on higher billings and collections, which resulted in a solid net cash position of S$57.3m. Pending a management briefing later, we keep our BUY rating but place our FV of S$0.485 under review for now.

Source: OCBC Research - 11 May 2016