• CSE Global booked 39.1% y-o-y and 47.7% y-o-y revenue and PATMI growth in 1H20, to SGD255.6m and SGD15.1m. Excluding a one-off FX gain, NPAT would have been SGD12.1m – at 53% of our previous full-year forecast.
• We anticipate CSE Global's FY20 results to outperform expectations, while the growing revenue from other segments should mitigate the softening in the oil & gas (O&G) sector. As such, we adjust our earnings forecasts by 9% and 7% for FY20-21.
• BUY, new Target Price of SGD0.60 from SGD0.54, 11% upside with 5% FY20F yield.

Growth Comes Largely From Acquisitions’ Contributions

• CSE Global (SGX:544)'s 1H20 revenue came in higher than our previous estimate (56% of full-year forecast), at SGD255.6m. Turnover from its O&G business surged 48% y-o-y to SGD179m, on higher revenue recognition from projects as well as the inclusion of contributions from Volta.
• For the mining and minerals (M&M) segment, 1H20 revenue rose 67.6% y-o-y to SGD26.4m, due to the acquisition of RCS Telecommunications. The infrastructure segment’s 1H20 revenue was at SGD50.2m (1H19: SGD47m). GPM widened by 2.7ppt to 30.3%, from a change in its sales mix. We expect GPM to normalise to around 27-29% in the quarters ahead.

Slowdown in the O&G Unit

• Order intake for this segment declined 38.8% q-o-q to SGD53.8m in 2Q20, from SGD87.9m in 1Q20. This led to a drop in 2Q20 O&G revenue to SGD83.4m, from SGD95.6m in 1Q20. As a result of the lower order intake and higher revenue recognition from O&G projects, CSE Global’s order backlog decreased to SGD144.9m as at end-2Q20. We expect the order intake in this segment to remain subdued, amidst the impact caused by the COVID-19 pandemic.

Diversification Mitigated the Downturn in O&G in 2Q20

• Total order intake in 2Q20 dropped 9.7% q-o-q to SGD114.9m, due to lower orders from the O&G segment. However, this was offset by increasing orders from the infrastructure and M&M units. The company’s orderbook – still resilient at SGD293.8m – comprises jobs from the following sectors: O&G (49%), infrastructure (43%), and M&M (8%).
• We believe that the growing order intake from the infrastructure and M&M segments will offset the softening in the O&G segment in 2H20.

CSE's Interim DPS of SGD0.0125

• CSE Global's management declared an interim DPS of SGD0.0125, due to its healthy operating cash flow of SGD33.9m in 1H20 and cash balance of SGD64.6m. The group pared down net debts swiftly, from SGD44.5m in 4Q19 to SGD21.1m as at end-2Q20.
• The interim DPS comes as no surprise, and we continue to believe that its full-year DPS will be the same as FY19’s, at SGD0.0275.

Maintain BUY on CSE Global

• We continue to believe that CSE Global’s 2H20 results will be solid. Its acquisition plan remains intact.
• With its 1H20 results being better than previously anticipated, we are cautiously optimistic on this company’s outlook.
• Our Target Price of SGD0.60 is based 10.8x FY21F P/E, which is also its 3-year mean.

Source: RHB Invest Research - 7 Aug 2020