• Keep BUY and DCF-backed SGD0.69 Target Price, 31% upside plus 5% yield.
• CSE Global (SGX:544) has secured two new contracts in the Americas worth USD74.7m (SGD103.7m). These new orders involve a range of projects, ie production control systems, both onshore and offshore. They are expected to be carried out over the next 2-3 years and should impact the group’s performance positively from FY20. See CSE Global Announcements.
• We continue to favour CSE Global, one of our Top Picks in the small-mid cap sector.

Upcoming 3Q19 Results Preview

• Assuming SGD80-90m of orders intake in 3Q19, coupled with the new orders of SGD104.7m, the built-up orderbook can easily reach SGD280-300m. This is > 50% q-o-q from the SGD188.1m recorded as at 2Q19, possibly hitting its all-time high since oil prices crashed in 2014.
• While we are positive on CSE Global’s prospects, with the building up of its orderbook, we think 3Q19 should record modest growth – excluding the one-off expenses related to its recent M&A. However, we are still concerned about the slow take-up for CSE Global’s infrastructure projects in Australia as a result of the delay in investment decisions. Nonetheless, this should be mitigated by the steady flow of orders from the minerals & mining sector.

Current Order Wins and More to Come?

• The order wins of USD74.7m (SGD103.7m) came in just in time to substitute the large greenfield orders worth SGD42m the group won in Mar 2017 – which are coming to an end or have ended. The former should be carried out over the next 2-3 financial years, which could translate into USD30-40m (SGD42-56m) in revenue pa. Assuming a 5% net margin, it could contribute SGD2.1-2.8m in net profit for CSE Global annually.
• These large contract wins came as a pleasant surprise to us, as we believe such opportunities are hard to come by given the current environment in the oil & gas space. However, we are hopeful that the group can win more high-value contracts in the infrastructure segment going into FY20, in addition to the ones won at the start of this year, as CSE Global is engaging more with the Government.

We Keep Our Call and Target Price

• We keep our call and DCF-backed Target Price, implying 11.9x FY20F P/E. CSE Global is currently trading at 9.1x FY20F P/E, with an attractive yield of 5.2%. See CSE Global Share Price; CSE Global Target Price; CSE Global Dividend History.
• Key downside risks include oil price volatility, an economic slowdown, FX risks, a declining orders intake, lower margins, and execution risks.

Source: RHB Invest Research - 1 Nov 2019