• Maintain BUY and DCF-backed Target Price of SGD0.69, 30% upside plus 5% yield.
• CSE GLOBAL LTD (SGX:544)'s 3Q19 revenue grew 21.9% to SGD111.5m on the back of higher revenue from infrastructure projects, oil & gas segment, as well as the inclusion of Volta. Net profit increased 17.8% to SGD5.7m, including profits from the discontinued operations – S3ID. See CSE Global Announcements.
• With an order intake of SGD156.1m (+94.5% y-o-y), we are anticipating an even higher order intake in 4Q19 to finish off the year with a robust orderbook.

9M19 Performance in Line; Better 4Q19

• CSE Global's 9M19 revenue and net profit of SGD295.2m (+7.7% y-o-y) and SGD15.6m (+6.8% y-o-y) were 71% and 69% of our forecasts respectively. We are expecting higher revenue in 4Q19 on Australia infrastructure projects picking up (+19% q-o-q in 3Q19, +7% q-o-q in 2Q19); consistent contributions from the mining & mineral sector; steady flow from the oil & gas segment; inclusion of Volta; and possibility of recognising some revenue from the larger contracts.
• CSE Global's 3Q19 GPM and EBIT margin saw a compression to 25.9% (-1.5ppts y-o-y) and 6.3% (-1.2ppts y-o-y), which may continue into the next quarter, bringing slight pressure to its full-year profit. Our FY19F net profit is SGD22.7m, and PATMI, excluding the one-offs, is SGD24.4m.

High Order Intake of SGD156.1m

• Order intake surged 94.5% y-o-y to SGD156.1m, including new orders from Volta of SGD46.4m – these excluded the two large contracts worth SGD103.7m it secured in Oct 2019.
• Orderbook stood at SGD232.6m as at 30 Sep 2019. Assuming an order intake of SGD116m (average of the past three quarters), coupled with the two large contracts announced, 4Q19 order intake could range between SGD210m and SGD230m. An orderbook of > SGD300m would give CSE Global a sizeable amount of backlog going into FY20F.

Tighter Cash Flow in the Upcoming Quarters

• Upfront spending was required to fund several larger-sized projects it secured in 3Q19 and early 4Q19. We are expecting a tighter cash flow in the upcoming 2-3 quarters.
• CSE Global took on debt to finance the purchase of Volta, giving rise to a net debt position of SGD45.7m, reversing from a net cash position of SGD8.6m in the previous quarter. However, management guided for DPS of 27.5 cents to be maintained for FY19, translating to a dividend yield of 5.2%. See CSE Global Dividend History.

Maintain BUY

• Maintain BUY and DCF-backed Target Price of SGD0.69, implying 11.9x FY19F P/E. With a high order intake and backlog, as well as the inclusion of profits from Volta, we are expecting CSE Global to produce strong results in FY20 as mentioned in our results preview note (see report: CSE Global - RHB Invest 2019-11-01: Anticipating FY20F; Keep BUY).
• CSE Global currently trading at 9.1x FY20F P/E, with an attractive dividend yield of 5.2%. See CSE Global Share Price; CSE Global Target Price; CSE Global Dividend History.
• Key downside risks include oil price volatility, economic slowdown, FX risks, declining order intake, lower margins, and execution risks.

Source: RHB Invest Research - 8 Nov 2019