CSE Global’s FY11 revenue and net profit came in at S$457m (+2% YoY) and S$28m (-47%) respectively, and were in line with our forecast and consensus. Overall, 2011 was a difficult year as CSE faced cost overruns and project execution delays in its Middle East projects. It also suffered an operating cash deficit of S$6.9m due to increased working capital requirements. Considering the past issues, we think that investors should exercise caution. CSE needs to demonstrate that it is able to execute contracts well and manage its growth judiciously. Maintain HOLD with unchanged fair value estimate of S$0.80.
FY11 net profits of S$28m
CSE Global’s FY11 revenue and net profit came in at S$457m (+2% YoY) and S$28m (-47%) respectively, and were in line with our forecast and consensus. Recall that the group had previously warned that its 4Q11 revenue and profit contribution would be adversely affected as several customers were late in providing approvals for its engineering designs. 4Q11 revenue and net profit were S$141m (+9% YoY) and S$9.4m (-20% YoY), respectively. Overall, 2011 was a difficult year as CSE faced cost overruns and project execution delays. It has proposed a final dividend of 2 Scts.
Middle East difficulties
The group had recorded provision of S$22m for cost over-run in its Middle East projects in 2Q11. In 4Q11, it experienced delays from customers, which affected its financial results. We suspect 2012 may continue to be challenging. Externally, the Middle East region still faces headwinds from rising political tensions (Iran-Israel conflict and Arab Spring) and financing concerns (the pull-back of European banks). Internally, the group had recently replaced its MD for the telco business (after the cost overrun issue) and may need time to manage the leadership transition.
Operating cash deficit
The group suffered an operating cash deficit of S$6.9m for FY11 (FY10: +S$58m operating cashflow) due to increased working capital requirements for its telco business. Net gearing has also increased to 34.3% as at end-Dec 11 (end-Sep 11: 0%). We project an order intake of S$500m in FY12F, and lowered our FY12F revenue and net profit by 10-13%, in line with management’s guidance. Considering the past operational issues, we think that investors should exercise caution. CSE needs to demonstrate that it is able to execute contracts well and manage its growth judiciously. Thus, we are keeping our HOLD with unchanged fair value estimate of S$0.80.
CSE Global’s FY11 revenue and net profit came in at S$457m (+2% YoY) and S$28m (-47%) respectively, and were in line with our forecast and consensus. Recall that the group had previously warned that its 4Q11 revenue and profit contribution would be adversely affected as several customers were late in providing approvals for its engineering designs. 4Q11 revenue and net profit were S$141m (+9% YoY) and S$9.4m (-20% YoY), respectively. Overall, 2011 was a difficult year as CSE faced cost overruns and project execution delays. It has proposed a final dividend of 2 Scts.
Middle East difficulties
The group had recorded provision of S$22m for cost over-run in its Middle East projects in 2Q11. In 4Q11, it experienced delays from customers, which affected its financial results. We suspect 2012 may continue to be challenging. Externally, the Middle East region still faces headwinds from rising political tensions (Iran-Israel conflict and Arab Spring) and financing concerns (the pull-back of European banks). Internally, the group had recently replaced its MD for the telco business (after the cost overrun issue) and may need time to manage the leadership transition.
Operating cash deficit
The group suffered an operating cash deficit of S$6.9m for FY11 (FY10: +S$58m operating cashflow) due to increased working capital requirements for its telco business. Net gearing has also increased to 34.3% as at end-Dec 11 (end-Sep 11: 0%). We project an order intake of S$500m in FY12F, and lowered our FY12F revenue and net profit by 10-13%, in line with management’s guidance. Considering the past operational issues, we think that investors should exercise caution. CSE needs to demonstrate that it is able to execute contracts well and manage its growth judiciously. Thus, we are keeping our HOLD with unchanged fair value estimate of S$0.80.
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