CSE Global

OCBC on 15 Aug 2012

CSE Global reported a decent set of 2Q12 results that were in line with ours and the street’s expectations. 2Q revenue was S$144.2m, up 42% YoY, on increased sales to USA, Europe/Middle East/Africa, while net profit was S$21.1m, helped by a S$10.0m one-off gain in disposal of associate company eBworx. The group’s telecom division reverted to profitability during the quarter with profit after tax of S$0.7m. CSE Global’s balance sheet also looked more stable as it lowered its gearing with cash proceeds from eBworx sale, and refinanced its short-term borrowing with a S$120m 3-year banking facility. Maintain BUY with a higher fair value estimate of S$1.09 (previously S$0.80).

2Q net profit S$21.1m
CSE Global reported a decent set of 2Q12 results that were in line with ours and the street’s expectations. 2Q revenue was S$144.2m, up 42% YoY, on increased sales to USA, Europe/Middle East/Africa, while net profit was S$21.1m, helped by a S$10.0m one-off gain in disposal of associate company eBworx. Gross margin was 28.3% for the quarter, below its typical 33-37% level. This is mainly due to the recognition of S$7.5m of zero-margin revenue on on-going Middle East projects and an increase in on-shore greenfield gas projects in USA which yielded lower margin than the traditional offshore work. The group also declared an interim dividend of 1.5 Scts for 1H12 (1H11: nil).

Operational improvement at Transtel
CSE Transtel – the telecom division that encountered the cost over-run issue last year – appears to be on the road to recovery. Having achieved operational breakeven (EBIT) in 1Q12, CSE Transtel now reported profit after tax of S$0.7m in 2Q12. The division is still working on the two difficult projects, and these are scheduled for completion by March 2013. We estimate the remaining unrecognized contract value to be ~S$12m, and it is likely to be booked as zero-margin revenue in the coming quarters.

Stronger balance sheet
During the quarter, CSE Global utilized sale proceeds of eBworx (S$21m) to pay down its debt, resulting in a lower gearing of 0.26x as of end June 2012 (end Mar 2012: 0.30x). It also refinanced its short-term borrowing with a S$120m 3-year banking facility.

Maintain BUY with higher fair value
We updated our model with 2Q results and increased our valuation peg to 9x (previously 7.5x) on operational and balance sheet improvements. This raised our fair value estimate to S$1.09 (previously S$0.80). Maintain BUY.