Investor confidence in CSE Global may be shaken after recently issuing a profit warning for its 4Q11 earnings. We note that this is the second disappointment in FY11 – which we also view as a leadership transition year – and this could lead to a market de-rating on higher perceived risks. While we have adjusted our FY11 numbers, we have kept our FY12 estimates unchanged. However, we are lowering our valuation peg from 9x previously to 7.5x, resulting in a lower fair value of S$0.80 (versus S$1.06). We also downgrade our call to HOLD.
4Q11 profit warning.
CSE Global warned that its 4Q2011’s profit after tax will be around 75% of what is achieved during 3Q2011. This is in contrast to its earlier guidance (on Nov 2011 Results Announcement) which stated that 4Q2011 performance “will be better than 3Q2011 and 4Q2010”. The group explained that several of its customers were late in providing approval to their engineering designs during the quarter, resulting in a lower-than-expected revenue and profit contribution from these contracts.
Investors’ confidence may be shaken.
We note that this is the second negative disappointment in FY11. The first was in Aug 11, where it announced S$21.7m in provisions for cost overrun in four Telecommunication projects. In view of the two negative surprises happening within the same financial year, we think that investors’ confidence may be somewhat shaken by the group’s disappointing execution of its contracts.
Experienced former MD goes on sabbatical leave.
In the meantime, the group announced that former Executive Deputy Chairman Mr. Tan Mok Koon will be taking a one-year sabbatical leave and will be re-designated as Non-Executive Chairman. Mr. Tan had led the group from 1997 until 2011 when he passed on his responsibilities as Group MD to Mr. Alan Stubb. Mr. Tan was then re-appointed as Executive Deputy Chairman.
Downgrade to HOLD with fair value estimate of S$0.80.
On the points mentioned above, it appears that the leadership transition may have not been as smooth as envisioned. The learning curve is understandably steep, especially when the group has operations in over 20 countries. While we have adjusted our FY11 numbers, we have kept our FY12 estimates unchanged. However, we are lowering our valuation peg from 9x previously to 7.5x, resulting in a lower fair value of S$0.80 (versus S$1.06). We also downgrade our call to HOLD.
Investors’ confidence may be shaken.
We note that this is the second negative disappointment in FY11. The first was in Aug 11, where it announced S$21.7m in provisions for cost overrun in four Telecommunication projects. In view of the two negative surprises happening within the same financial year, we think that investors’ confidence may be somewhat shaken by the group’s disappointing execution of its contracts.
Experienced former MD goes on sabbatical leave.
In the meantime, the group announced that former Executive Deputy Chairman Mr. Tan Mok Koon will be taking a one-year sabbatical leave and will be re-designated as Non-Executive Chairman. Mr. Tan had led the group from 1997 until 2011 when he passed on his responsibilities as Group MD to Mr. Alan Stubb. Mr. Tan was then re-appointed as Executive Deputy Chairman.
Downgrade to HOLD with fair value estimate of S$0.80.
On the points mentioned above, it appears that the leadership transition may have not been as smooth as envisioned. The learning curve is understandably steep, especially when the group has operations in over 20 countries. While we have adjusted our FY11 numbers, we have kept our FY12 estimates unchanged. However, we are lowering our valuation peg from 9x previously to 7.5x, resulting in a lower fair value of S$0.80 (versus S$1.06). We also downgrade our call to HOLD.
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