CSE Global Limited’s (CSE) 2Q15 core PATMI came in flat, just up 0.4% YoY at S$8.1m, while revenue increased 3.8% to S$112.1m, driven by growth from the Americas and Europe/Middle East/Africa regions. However, 2Q15 gross margin declined 2.6ppt YoY to 26.6% with higher revenue recognized from a large but lower gross margin greenfield project in Australia. While 1H15 revenue rose 8.2% YoY to S$217.7m, higher operating expenses and lower gross margin led to a flat 0.6% growth in core PATMI to S$15.7m. We expect 2H15 to catch up on higher gross margin, steady stream in new orders received and recognition of close to half of its existing outstanding order book. Recurring brownfield projects will continue to contribute significantly to its earnings resilience. On these reasons and rolling-forward to 9x blended FY15/16F PER, our FV remains unchanged at S$0.62. However, given the recent price correction, we upgrade CSE to BUY, supported by a decent FY15F dividend yield of 5.4%.
Lower margin project largely recognized by 1H15
CSE Global Limited’s (CSE) 2Q15 core PATMI came in flat, just up 0.4% YoY at S$8.1m, while revenue increased 3.8% to S$112.1m, driven by growth of 9.8% and 15.5% from the Americas and Europe/Middle East/Africa (EMEA) regions, respectively. However, 2Q15 gross margin declined 2.6ppt YoY to 26.6% with higher revenue recognized from a large but lower gross margin greenfield project in Australia, translating to a 15.4% YoY decline in EBIT to S$11.4m. CSE’s 1H15 revenue rose 8.2% YoY to S$217.7m, driven by the Americas and EMEA regions but higher operating expenses and lower gross margin led to a flat 0.6% growth in core PATMI to S$15.7m, which formed only 43.9% of our FY15 forecast. However, excluding the lower margin Australia project, gross margin would have been closer to 30%, which is encouraging.
Expects 2H15 to catch up on healthy order book
Despite the headwinds in the oil & gas (O&G) industry, CSE continued to show resilience in its sales as 2Q15 new orders received rose 2.2% YoY to S$97.4m while outstanding orders as at end-2Q15 grew 22.1% to S$237.8m. While 1H15 core PATMI fell short of our FY15 forecast, we expect 2H15 performance to catch up on two key reasons: 1) with lower revenue recognition from the lower margin Australia project, we believe overall blended gross margin is likely to return to the 28% region, and 2) we expect close to half of its outstanding order book to be recognized in 2H15, and the remaining by FY16. We remain cautiously optimistic over CSE’s outlook, as we note: 1) opportunities are available for recurring brownfield and smaller greenfield projects, 2) CSE acquired new customers in the O&G industry over 1H15, and 3) the group is expanding its presence in providing infrastructure services (specifically telecommunication) in Australia to maintain revenue contribution from the country as the large greenfield project nears completion.
Share price correction overdone; upgrade to BUY
Incorporating 2Q15 results, we slightly pare our FY15/16F core PATMI by 1.9/2.1%. Rolling forward to 9x blended FY15/16F PER, our FV remains unchanged at S$0.62. Noting a 16.9% correction in share price since our last update, we upgrade CSE to BUY, supported by a solid balance sheet and decent FY15F dividend yield of 5.4%.
CSE Global Limited’s (CSE) 2Q15 core PATMI came in flat, just up 0.4% YoY at S$8.1m, while revenue increased 3.8% to S$112.1m, driven by growth of 9.8% and 15.5% from the Americas and Europe/Middle East/Africa (EMEA) regions, respectively. However, 2Q15 gross margin declined 2.6ppt YoY to 26.6% with higher revenue recognized from a large but lower gross margin greenfield project in Australia, translating to a 15.4% YoY decline in EBIT to S$11.4m. CSE’s 1H15 revenue rose 8.2% YoY to S$217.7m, driven by the Americas and EMEA regions but higher operating expenses and lower gross margin led to a flat 0.6% growth in core PATMI to S$15.7m, which formed only 43.9% of our FY15 forecast. However, excluding the lower margin Australia project, gross margin would have been closer to 30%, which is encouraging.
Expects 2H15 to catch up on healthy order book
Despite the headwinds in the oil & gas (O&G) industry, CSE continued to show resilience in its sales as 2Q15 new orders received rose 2.2% YoY to S$97.4m while outstanding orders as at end-2Q15 grew 22.1% to S$237.8m. While 1H15 core PATMI fell short of our FY15 forecast, we expect 2H15 performance to catch up on two key reasons: 1) with lower revenue recognition from the lower margin Australia project, we believe overall blended gross margin is likely to return to the 28% region, and 2) we expect close to half of its outstanding order book to be recognized in 2H15, and the remaining by FY16. We remain cautiously optimistic over CSE’s outlook, as we note: 1) opportunities are available for recurring brownfield and smaller greenfield projects, 2) CSE acquired new customers in the O&G industry over 1H15, and 3) the group is expanding its presence in providing infrastructure services (specifically telecommunication) in Australia to maintain revenue contribution from the country as the large greenfield project nears completion.
Share price correction overdone; upgrade to BUY
Incorporating 2Q15 results, we slightly pare our FY15/16F core PATMI by 1.9/2.1%. Rolling forward to 9x blended FY15/16F PER, our FV remains unchanged at S$0.62. Noting a 16.9% correction in share price since our last update, we upgrade CSE to BUY, supported by a solid balance sheet and decent FY15F dividend yield of 5.4%.
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