CSE Global Limited’s (CSE) 2Q16 PATMI from continuing operations declined 28.2% YoY to S$5.5m on the back of a 31.9% plunge in revenue to S$74.3m due to lower contributions across all geographic regions, particularly in the oil & gas industry sector on lack of large greenfield projects. CSE’s 2Q16 gross margin from continuing operations improved 7.9ppt YoY to 34.4% due to better margins achieved from some completed projects.

However, 2Q16 EBIT declined 31.8% YoY to S$7.3m mainly due to

1) recognition of revenue for large greenfield project in 2Q15 that did not recur in 2Q16 for the Asia Pacific region, and

2) lower contributions from greenfield and brownfield project in the Americas region.

For 1H16, PATMI from continuing operations fell 24.8% to S$11.0m, and only formed 43.5% of our FY16 forecast. New orders received in 2Q16 dropped 11.9% to S$83.2m while outstanding orders decreased 21.6% to S$186.6m.

CSE also recorded strong operating cash inflow of S$22.7m in 1Q16 on higher billings and collections, which resulted in a solid net cash position of S$49.1m. Pending a management briefing later, we keep our HOLD rating but place our FV of S$0.44 under review for now.  

Source: OCBC Research - 11 Aug 2016