• CSE GLOBAL LTD (SGX:544)'s 1Q19 core net profit of S$4.6m was in line with expectations at 21% of our and Bloomberg consensus FY18 estimates (S$21.7m/S$21.7m).
• Revenue was down (-7.4% y-o-y) but largely due to delays in project deliveries for the Americas. These projects are slated to kick-start from 2Q19F. End-1Q19 order backlog at S$182.1m (end-4Q18: S$181.0m).
• Maintain ADD and Target Price based on 13.5x CY20F P/E (near 5-year mean: 13.1x).

Revenues Down as Contracts Pushed Back to Later Quarters

• CSE Global today reported that 1Q19 revenues fell 7.4% y-o-y to S$85.4m, mainly due to
  1. lower large greenfield revenue, and
  2. the delay in the delivery schedules of some projects in the Americas (-13.4% y-o-y) (largely due oil and gas projects in our view), to later quarters.
• Asia Pacific revenue (largely infrastructure projects) held up, growing 1.8% y-o-y in 1Q. Europe/Middle East/ Africa segment saw revenue growth of 69.3% y-o-y.
• Asia Pacific, the Americas and Europe/Middle East/Africa contributed 34.2%, 63.0% and 2.8% to 1Q19 revenue, respectively.

Margins Intact, But EBIT Down Y-o-y; Net Profit Up Y-o-y

• CSE Global's 1Q19 gross profit margin (GPM) settled at 27.1% (vs. 1Q18’s 26.8%); we suspect this was due to an increase in higher-margin brownfield oil and gas projects.
• EBIT declined y-o-y on some non-recurring severance costs and associated legal expenses despite reduction in personnel costs during the quarter.
• Overall, core net profit (excluding net exchange gain) rose 5.3% y-o-y to S$4.6m in 1Q19 (1Q18: S$4.4m).

Order Intake Rises; FY18 Order Backlog Up Slightly

• Order wins rose to S$87.5m (vs. 1Q18: S$69m), driven by the oil and gas division (S$65.9m).
• End-1Q19 order backlog was at S$182.2m (vs. S$175.0m at end-Dec 2018).

Stronger Quarters Ahead; Analyst Briefing Tomorrow

• CSE Global guided that projects will kick-start from 2Q19F onwards.
• We expect the main questions during its analyst briefing tomorrow to revolve around its outlook for
  1. forward order intake, and
  2. future M&As.

Maintain ADD; Healthy Balance Sheet Supports Dividends and M&As

• We like CSE Global due to its
  1. earnings recovery (+14.3% y-o-y in FY19F);
  2. net cash position (end-1Q19 position of S$34.8m), and
  3. its set DPS of 2.75 Scts p.a.
• Our target price is based on 13.5x CY20F P/E (close to its historical 5-year mean of 13.1x).
• Stronger-than-expected order wins and GPMs are potential stock catalysts.
• Lower-than-expected order wins and GPMs are key risks to our Add call.

Source: CGS-CIMB Research - 6 May 2019