• CSE GLOBAL LTD (SGX:544) announced that it has secured new oil and gas contracts worth a cumulative US$74.7m (S$103.7m). See CSE Global Announcements.
• The new wins area pleasant surprise; coupled with higher ‘flow contracts’ in 2H19F, this could fuel end-FY19F order book to beyond S$300m, in our view.
• We keep our forecasts, call and Target Price. CSE remains one of our favourite small-cap stocks due to its steady EPS growth and dividends.

Two New Projectsfrom the Americas Totaling S$100m

• The two new oil and gas contracts involve a wide range of projects to support the production of subsea wells, operation of subsea gas trunk lines and other subsea infrastructure.
• According to CSE's Announcements, these projects are expected to contribute positively to its financial performance from FY20F and beyond; as such, we believe these projects could be executed over the next 2-3 years.
• Assuming net profit margin of 5.5% (achieved in 1H19), these projects would yield S$5m to CSE’s bottomline when completed.

Bolstering Its Order Book!

• The wins take cumulative reported FY19 order wins to S$269m (order intake as at 1H19 was S$193.9m) and assuming further intake of S$200m in 2H19F (estimated flow projects) and revenue recognition of S$200m in 2H19F, CSE could end FY19F with order backlog of at least S$300m (vs. end-2Q19 order backlog of S$188m).
• If so, this could also be the highest order backlog CSE has reported in the past five years.

3Q19F Preview

• CSE will report its 3Q19 results on 6 Nov, and host an analyst briefing on 7 Nov.
• We estimate 3Q19F revenue at S$105.3m, on higher project execution in 3Q19F, and expect core net profit of S$5.9m and net profit margin of 5.5%.
• We expect 9M19F revenue at S$292.9m and core net profit at S$15.5m.

Maintain ADD

• CSE has been our preferred small-cap O&G pick due to its
  1. sustained earnings growth,
  2. healthy balance sheet, and
  3. secure dividend payout (see CSE Global Dividend History).
  These large greenfield projects further solidify its appeal.
• We maintain our forecasts pending its upcoming results.
• Target price is still based on 13.5x FY20F P/E (+0.5 s.d.of its 5-year average mean due to a better footing from FY19F onwards).
• Stronger-than-expected order wins and GPMs are potential re-rating catalysts.
• Lower-than-expected order wins and GPMs are key downside risks to our ADD call.

Source: CGS-CIMB Research - 29 Oct 2019