CSE Global reported 1Q13 results that were in-line with ours and the street’s estimates. 1Q revenue fell 10.9% YoY to S$120m on lower contribution from the Americas and EMEA (Europe, Middle East & Africa), while PATMI was flat at S$12.7m. After encountering issues in the Middle East in 2011 (cost overrun at two large telco projects) and the Americas in 2012 (lower-than-expected margins for onshore work), CSE Global now appears to be more keen on the higher margin brownfield projects, while carefully re-evaluating the lower-margin greenfield jobs. We now expect a slight contraction or modest growth in the top-line across FY13-14F and gross margins to stabilize around 30%. We have tweaked our model slightly and our FV declines to S$0.96 (previously S$0.99) on 10x FY13F PER. Maintain BUY.
1Q net profit in-line
CSE Global reported 1Q13 results that were in-line with ours and the street’s estimates. 1Q revenue fell 10.9% YoY to S$120m on lower contribution from the Americas and EMEA (Europe, Middle East & Africa), while PATMI was flat at S$12.7m. The improvement in net margin (1Q13: 10.5%; 1Q12: 9.4%) was due to (i) lower amount of zero-margin revenue in the Middle East (as the loss-making projects were nearing completion), and (ii) a larger amount of high-margin offshore work in the Americas.
Focus on profitability
After encountering issues in the Middle East in 2011 (cost overrun at two large telco projects) and the Americas in 2012 (lower-than-expected margins for onshore work), CSE Global now appears to be more keen on the higher margin brownfield projects, while carefully re-evaluating the lower-margin greenfield jobs. Against this backdrop, its order-book declined to S$361.1m as of end 1Q13 (end 4Q12: S$384.5m) as the new orders secured (S$95.4m) were lower than its normal run-rate of S$120-140m per quarter. However, management assured us that the existing order-book consists largely of good-margin jobs.
Reclassification of certain costs
Meanwhile, CSE Global re-classified certain costs associated with staff costs (e.g. social security) from below the gross margin into the “cost of sales” for consistency across different business units within the group. Consequently, gross margin is lowered by 2-3%, although there is no impact at the net profit margin level.
Margins to stabilize
We now expect a slight contraction in the top-line for FY13F, followed by a modest 13% organic growth for FY14F. In terms of profitability, we think that gross margin should stabilize around 30%. We have tweaked our model slightly and our FV declines to S$0.96 (previously S$0.99) on 10x FY13F PER. Maintain BUY.
CSE Global reported 1Q13 results that were in-line with ours and the street’s estimates. 1Q revenue fell 10.9% YoY to S$120m on lower contribution from the Americas and EMEA (Europe, Middle East & Africa), while PATMI was flat at S$12.7m. The improvement in net margin (1Q13: 10.5%; 1Q12: 9.4%) was due to (i) lower amount of zero-margin revenue in the Middle East (as the loss-making projects were nearing completion), and (ii) a larger amount of high-margin offshore work in the Americas.
Focus on profitability
After encountering issues in the Middle East in 2011 (cost overrun at two large telco projects) and the Americas in 2012 (lower-than-expected margins for onshore work), CSE Global now appears to be more keen on the higher margin brownfield projects, while carefully re-evaluating the lower-margin greenfield jobs. Against this backdrop, its order-book declined to S$361.1m as of end 1Q13 (end 4Q12: S$384.5m) as the new orders secured (S$95.4m) were lower than its normal run-rate of S$120-140m per quarter. However, management assured us that the existing order-book consists largely of good-margin jobs.
Reclassification of certain costs
Meanwhile, CSE Global re-classified certain costs associated with staff costs (e.g. social security) from below the gross margin into the “cost of sales” for consistency across different business units within the group. Consequently, gross margin is lowered by 2-3%, although there is no impact at the net profit margin level.
Margins to stabilize
We now expect a slight contraction in the top-line for FY13F, followed by a modest 13% organic growth for FY14F. In terms of profitability, we think that gross margin should stabilize around 30%. We have tweaked our model slightly and our FV declines to S$0.96 (previously S$0.99) on 10x FY13F PER. Maintain BUY.
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