Singapore | Energy Equipment & Services

Asia Pacific Equity Research

CSE GLOBAL | HOLD

MARKET CAP: USD 164M

12 May 2016
Company Update

AVG DAILY TURNOVER: USD 0.1M

SOFT EARNINGS OUTLOOK

HOLD (downgrade)

1Q16 missed expectations

Oil & gas headwinds hitting business
Building up infrastructure segment

Fair value

S$0.440

add: 12m dividend forecast

S$0.0200
S$0.435

versus: Current price

12m total return forecast

Lesser projects from oil & gas customers in 1Q16

CSE Global Limiteds (CSE) 1Q16 PATMI from continuing operations
missed expectations as it declined 20.9% YoY to S$5.5m on the back of
a 16.5% drop in revenue to S$84.2m due to lower contributions from
Asia-Pacific (-25.4%) and the Americas (-19.4%) regions, but offset by
37.7% growth in Europe/Middle-East/Africa (EMEA) region. By industry,
1Q16 revenue was mainly impacted by oil & gas (O&G) segment, which
decreased 20.4% YoY to S$68m. While CSEs 1Q16 gross margin was
largely stable at 28.6%, EBIT declined 36.2% YoY to S$6.4m, dragged
by deferral of Australian projects, weaker AUD against SGD, as well as
lower gross margins achieved in the Americas and EMEA regions. CSEs
O&G segment 1Q16 EBIT was the worst hit with 47.2% YoY plunge to
S$4.2m. Excluding one-off transaction expenses relating to new
acquisitions, 1Q16 core PATMI declined by a lower 11.9% YoY to
S$6.1m, and formed 22.0% of our FY16 forecasts.
Expect margins to weaken
With new orders received in 1Q16 dropping 23.8% to S$74.9m and
outstanding orders decreasing 28.9% to S$179.6m, we expect its FY16
earnings to soften. Also, given that more than 80% of its 1Q16 revenue
was contributed by customers in the O&G sector, we expect the
declining number of available greenfield projects in the market, due to
low oil and commodity prices, may lead to CSE taking on projects with
lower margins. However, we still expect its higher margins recurring
brownfield projects to contribute about half of CSEs FY16 revenue.
While management has stated the focus now is to build up and secure
more projects from infrastructure segment (17%/32% of 1Q16
revenue/EBIT), we think this takes time and is unlikely to materially
offset the weakness in its O&G segment.
FY16F dividend yield of 4.6%
In view of the headwinds, we cut our FY16/FY17 PATMI forecasts by
8.8% and 8.3%, respectively. Consequently, we downgrade CSE to
HOLD rating as we lower our FV from S$0.485 to S$0.440. However,
given its solid balance sheet (net cash of S$57.3m) and resilient
recurring revenue, we believe longer-term investors may look for buying
opportunities closer to S$0.40.

6%

Analysts
Eugene Chua (Lead) +65 6531 9678
eugene.chua@ocbc.com
Jodie Foo +65 6531 9809
jodiefoo@ocbc.com
Key information
Market cap. (m)

S$224.5 /
USD164.2

Avg daily turnover (m)

S$0.1 /
USD0.1

Avg daily vol. (m)

0.2

52-wk range (S$)

0.3976 - 0.6163

Free float (%)

76.4

Shares o/s. (m)

516.1

Exchange

SGX

BBRG ticker

CSE SP

Reuters ticker

CSES.SI

SGX code

544
Information
Technology

GICS Sector
GICS Industry

IT Services
Tan Mok Koon 13.0%

Top shareholder

1m

3m

12m

Company (%)

Relative total return

-19

STI-adjusted (%)

-1

-1

Price performance chart

Sources: Bloomberg, OIR estimates

Key financial highlights

Year Ended Dec 31 (S$m)

FY14

FY15

FY16F

FY17F

Revenue

416.7

412.0

376.5

391.1

Gross Profit

119.2

118.2

99.8

104.8

EBITDA

50.0

44.2

38.3

41.8

Core PATMI

32.3

30.7

25.3

28.2

Core EPS (S cents)

6.2

5.9

4.9

5.5

Cons. EPS (S cents)

na

na

5.5

5.9

ROE (%)

17.5

15.1

10.2

10.7

PER (x)

6.3

6.6

8.9

8.0

Price/NTA (x)

1.4

1.1

1.1

1.0

Dividend Yield (%)

6.3

6.3

4.6

5.2

Industry-relative metrics

Note: Industry universe defined as companies under identical GICS classification

listed on the same exchange.
Sources: Bloomberg, OIR estimates

Please refer to important disclosures at the back of this document.

MCI (P) 005/06/2015

OCBC Investment Research

Singapore Equities

Exhibit 1: Financial highlights

1Q15

1Q16

% Chg

4Q15

% Chg

(S$m)

(S$m)

(YoY)

(S$m)

(YoY)

Revenue

100.8

84.2

-16.5%

98.8

-14.7%

Cost of sales

-72.1

-60.2

-16.6%

-68.1

-11.6%

Gross profit

28.7

24.1

-16.2%

30.7

-21.5%

0.1

0.1

-54.4%

0.3

-83.2%

-16.8

-17.2

2.1%

-20.4

-15.9%

Selling and distribution expenses

-1.1

-0.9

-13.4%

-0.5

71.9%

Other expenses

-1.2

0.3

N.M.

-1.2

N.M.

Operating profit

9.9

6.3

-35.7%

8.9

-28.8%

Finance income

0.2

0.1

-66.5%

0.0

28.3%

Finance costs

0.0

-0.2

1168.8%

-0.4

-46.7%

Share of results of associated companies, net of tax

0.0

0.0

N.M.

0.0

N.M.

Goodwill written off

0.0

0.0

N.M.

0.0

N.M.

Gain from disposal of subsidiaries/associated companies

0.0

0.0

N.M.

0.2

-100.0%
-29.6%

Other operating income ex. finance income

Administrative expenses

Profit before tax

10.0

6.2

-38.1%

8.8

Income tax expense

-3.0

-0.9

-68.4%

-0.6

56.0%

Profit net of tax (continuing operations)

7.0

5.3

-25.2%

8.2

-36.0%

Profit from discontinuing operations

1.0

0.0

-100.0%

0.0

N.M.

Profit net of tax (continuing and discontinuing ops)

8.0

5.3

-34.2%

8.2

-36.0%

PATMI

7.6

5.5

-27.5%

8.3

-33.6%

Non-controlling interests

0.4

-0.3

N.M.

-0.1

194.2%

Core PATMI

6.6

5.5

-17.0%

8.1

-31.7%

Source: Company financials

Exhibit 2: CSEs revenue by geographical region (continuing operations)

Source: Company

OCBC Investment Research

Singapore Equities

Exhibit 3: CSEs EBIT by geographical region (continuing operations)

Source: Company

Exhibit 4: CSEs revenue by industry (continuing operations)

Source: Company

OCBC Investment Research

Singapore Equities

Exhibit 5: CSEs EBIT by industry (continuing operations)

Source: Company

Exhibit 6: CSEs new orders and outstanding order book

Source: Company

OCBC Investment Research

Singapore Equities

Company financial highlights

Income statement
Year Ended Dec 31 (S$m)
Revenue
Gross Profit
EBITDA
Operating Profit
Net Finance Expenses
Profit Before Tax
Net Profit from Continuing Operations
Net Profit from Discontinuing Operations
Reported PATMI
Core PATMI

Balance sheet
As at Dec 31 (S$m)
Cash and Cash Equivalents
Other Current Assets
Property, Plant & Equipment
Other Non-current Assets
Total Assets
Current Liabilities Less Debt
Total Debt
Total Liabilities
Shareholders Equity
Total Equity and Liabilities

Cash flow statement

Year Ended Dec 31 (S$m)
Operating Cashflows Before Working Capital Changes
Working Capital Changes
Net Cash from Operations
Capex
Investing Cash flow
Dividends Paid On Ordinary Shares
Financing Cash Flow
Net Cash Flow
Cash at Beginning of Year
Cash at End of Year

Key rates & ratios

EPS (S cents)
Core EPS (S cents)
PER (x)
Price/NTA (x)
EV/EBITDA (x)
Dividend Yield (%)
ROA (%)
ROE (%)
Net Gearing (%)
Core Net Margin (%)

FY14

FY15

FY16F

FY17F

416.7
119.2
50.0
46.3
-0.2
46.1
33.8
3.1
35.4
32.3

412.0
118.2
44.2
40.2
-0.6
39.6
30.9
3.4
34.1
30.7

376.5
99.8
38.3
34.8
-1.4
33.4
25.6
0.0
25.3
25.3

391.1
104.8
41.8
38.1
-0.9
37.3
28.5
0.0
28.2
28.2

FY14

FY15

FY16F

FY17F

66.9
193.6
22.4
57.9
340.8
75.1
43.9
123.2
210.2
340.8

109.7
182.7
23.4
58.7
374.6
68.2
55.6
128.8
241.4
374.6

110.2
172.8
25.1
58.5
366.7
70.6
30.1
105.6
256.4
366.7

121.7
179.4
26.6
58.3
386.1
73.1
30.1
108.2
273.0
386.1

FY14

FY15

FY16F

FY17F

56.5
-30.3
10.7
-5.5
-4.9
-166.4
-126.2
-120.4
186.6
66.9

45.9
4.4
41.0
-4.4
-0.3
-14.2
-2.6
38.0
66.9
109.7

38.3
12.2
41.3
-5.0
-5.0
-10.3
-35.8
0.4
109.7
110.2

41.8
-4.0
28.2
-5.0
-5.0
-11.6
-11.6
11.6
110.2
121.7

FY14

FY15

FY16F

FY17F

6.9
6.2
6.3
1.4
4.2
6.3
9.0
17.5
net cash
7.7

6.6
5.9
6.6
1.1
4.0
6.3
9.5
15.1
net cash
7.4

4.9
4.9
8.9
1.1
3.9
4.6
6.8
10.2
net cash
6.7

5.5
5.5
8.0
1.0
3.3
5.2
7.5
10.7
net cash
7.2

Sources: Company, OIR forecasts

Company financial highlights

OCBC Investment Research

Singapore Equities

SHAREHOLDING DECLARATION:
The analyst/analysts who wrote this report holds/hold NIL shares in the above security.

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Important disclosures