• Maintain BUY, with new DCF-based Target Price of SGD0.61 from SGD0.60, 12% upside plus 5% yield.
• CSE GLOBAL LTD (SGX:544) announced last Friday that it entered into a share purchase agreement to acquire 100% of RCS Telecommunications’ Pty Ltd through its indirect wholly-owned subsidiary, CSE Crosscom Pty Ltd (see CSE Global's announcement). With operations in Queensland, RCS provides communications networking and 2-way radio systems design & implementation.

Proposed Acquisition of RCS for AUD11.64m

• The aggregate consideration – approximately SGD11.26m – should be satisfied entirely in cash.
• Based on RCS’ unaudited financial statement as at 30 Jun 2018, net tangible asset value stood at AUD7.1m. This value of the transaction is at 1.64x Price-to-NTA. If we assumed the acquisition to be around 8-11x P/E, we are looking at 5-7% (annualised) earnings accretion in FY19F, excluding the initial growth forecast.

More M&A in the Pipeline

• The acquisition of RCS helps the group to strengthen its footprint in Queensland, Australia. We are expecting 1-2 more acquisition(s) and deal size(s) could potentially be more substantial than this.
• However, we think that this would likely be out of Australia, as we understand management is actively seeking expansion in the oil & gas segment in the US, as well as strengthening its Singapore infrastructure segment.

Positive on This Counter

• Healthy order intake and stable margins are setting CSE Global’s earnings growth on an upward trajectory. Coupled with management’s appetite for expansion through earnings accretive M&A, we remain confident this counter should continue to perform well in the near term.
• With the recent acquisition of RCS, we lift our FY19F-23F NPAT by 4-6%. As such, y-o-y NPAT growth for FY19F-20F is about 13%.

Maintain BUY

• We lifted our DCF-backed Target Price of CSE Global to SGD0.61 from SGD0.60, reflecting 13.7x FY19F P/E. CSE Global is currently trading at 12.3x FY19F P/E, with an attractive dividend yield of 5%.
• Key downside risks include oil price volatility, economic slowdown, forex risks, declining order intake, lower margins and execution risks.

Source: RHB Invest Research - 26 Mar 2019