CSE Global Limited reported 2Q13 results that were generally in-line with ours and the street’s estimate. 2Q core net profit increased 12% YoY to S$12m, mainly due to (i) the lower level of zero-margin revenue in the Middle East and (ii) higher level of more profitable offshore work in the Americas. Separately, the group disclosed that it intends to divest 100% of its ownership in its UK subsidiary through a separate listing on the London Stock Exchange. We are positive on the move. Besides unlocking value, we believe the spin-off would simplify and improve oversight of CSE’s different businesses. Maintain BUY with an unchanged S$0.96 FV.
2Q results in-line with expectations
CSE Global Limited reported 2Q13 results that were generally in-line with ours and the street’s estimate. 2Q revenue fell 20% YoY to S$116m on lower contribution from the Americas and the EMEA (Europe, Middle East & Africa), while core net profit increased 12% YoY to S$12m. The margin improvement was mainly due to (i) lower level of zero-margin revenue in the Middle East and (ii) higher level of more profitable offshore work in the Americas. Order-book was S$375m as of end-2Q13.
Spin-off of UK subsidiary
Separately, CSE disclosed that it intends to divest 100% of its ownership in its UK subsidiary (CSE UK), through a separate listing on the London Stock Exchange. This listing will “provide financial independence to both CSE and CSE UK to facilitate future access into capital market … to pursue future growth opportunities”. The listing is expected to be completed in 2013; part of the net proceeds will be returned to shareholders. CSE will continue to operate and enhance the remaining elements of its business in the USA and Asia-Pacific.
Business rationalization
Besides unlocking the value of the UK subsidiary, we believe that the spin-off would simplify and improve oversight of CSE’s different businesses. Over the years, the group has grown to such a size that makes management control difficult. This led to several issues, including cost over-run in two Middle East projects (2011), and lower-than-expected margin in its onshore work in the USA (2012). We believe management is now working to rationalize its businesses and improve its control.
Maintain BUY with unchanged S$0.96 FV
We cross-checked our valuation using SOTP methodology and found that our current FV also reflects the break-up value. Please see Exhibit 2 for more details. Maintain BUY with an unchanged S$0.96 FV.
CSE Global Limited reported 2Q13 results that were generally in-line with ours and the street’s estimate. 2Q revenue fell 20% YoY to S$116m on lower contribution from the Americas and the EMEA (Europe, Middle East & Africa), while core net profit increased 12% YoY to S$12m. The margin improvement was mainly due to (i) lower level of zero-margin revenue in the Middle East and (ii) higher level of more profitable offshore work in the Americas. Order-book was S$375m as of end-2Q13.
Spin-off of UK subsidiary
Separately, CSE disclosed that it intends to divest 100% of its ownership in its UK subsidiary (CSE UK), through a separate listing on the London Stock Exchange. This listing will “provide financial independence to both CSE and CSE UK to facilitate future access into capital market … to pursue future growth opportunities”. The listing is expected to be completed in 2013; part of the net proceeds will be returned to shareholders. CSE will continue to operate and enhance the remaining elements of its business in the USA and Asia-Pacific.
Business rationalization
Besides unlocking the value of the UK subsidiary, we believe that the spin-off would simplify and improve oversight of CSE’s different businesses. Over the years, the group has grown to such a size that makes management control difficult. This led to several issues, including cost over-run in two Middle East projects (2011), and lower-than-expected margin in its onshore work in the USA (2012). We believe management is now working to rationalize its businesses and improve its control.
Maintain BUY with unchanged S$0.96 FV
We cross-checked our valuation using SOTP methodology and found that our current FV also reflects the break-up value. Please see Exhibit 2 for more details. Maintain BUY with an unchanged S$0.96 FV.
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