• CSE Global's 1Q20 core net profit of S$7.1m was ahead at 36% of our FY20F estimate (S$19.7m) but in line with consensus at 29.6% (S$23.8m).
• Management said there was some activity slowdown in Apr but no signs of major project/order book cancellations yet. We raise our FY20-22F EPS.
• Reiterate our ADD call with a higher Target Price of S$0.55, now based on 12x P/E (close to 2014-2019 average of 11.7x) on stronger-than-expected prospects.

CSE Global Reported 1Q20 Net Profit Up 26.7% Y-o-y

• CSE Global (SGX:544)'s 1Q20 revenue of S$131.8m (+c.56% y-o-y) was slightly ahead on healthier-than-expected flow revenues and contributions from its new acquisitions, especially from the Americas and Asia-Pacific regions. This coupled with stable gross margins led to 1Q20 net profit of S$7.1m (+c.23% y-o-y).

Good 1Q Order Intake

• CSE Global won S$127.2m worth of orders in 1Q20, the majority of which were flow projects (S$87.8m for the oil & gas segment; S$25.6m for infrastructure segment; and S$13.9m for mining and minerals segment) which accounted for 45% of our FY20F S$280m order win forecast, taking end-Mar 20F order book to S$302.7m (end 2019: S$307.9m).

Strong Cashflow Generation, Balance Sheet Position Improves

• CSE Global said that it saw strong operational cashflow of S$17.3m in 1Q20 due to better working capital management. It also guided it had lowered its net debt position to S$32.7m, compared to 4Q19’s S$44.5m; hence, net gearing fell to 0.18x in 1Q20.

Outlook Better Than Expected, Raise FY20-22F EPS

• While management said there was some activity slowdown in April 20, due to Covid-19 and lower crude oil price environment, there were no material project/order book cancellations yet. Even though management thinks there could be fewer opportunities and lower prices, especially for new oil and gas segment orders, in FY20F, we think our previous contract intake forecasts are on the low side. As such, we lift our FY20-22F contract intake estimates to S$360m-460m (versus S$280m-420m previously).
• We also trim our interest cost forecasts given the better balance sheet position. This raises our FY20-22F EPS forecasts by 12.6-14%.

Reiterate ADD

• We reiterate Add on CSE Global with a higher target price of S$0.55, now based on 12x CY21F EPS (from 11x previously), closer to 5-year (2014-2019) average of 11.7x, as we think CSE Global’s prospects are better than previously expected.
• We think CSE Global’s padded order backlog will cushion it in these tough times, and think it can maintain its dividend yield as long as cashflow generation is intact.
• Potential re-rating catalysts are swifter project execution and higher order wins (thus potential revenues).
• Downside risks are lower order wins and potential cuts in DPS.

Source: CGS-CIMB Research - 3 Jun 2020