CSE kept at 'buy' by UOB, RHB on stronger outlook with 4Q contract wins
SINGAPORE (Jan 16): UOB Kay Hian and RHB Research are reiterating their “buy” calls on CSE Global after the group announced it secured $84.8 million worth of infrastructure projects in 4Q18.
Both research houses have a 59-cent target price on the stock.
In a Wednesday report, UOB analyst Yeo Hai Wei says CSE latest win highlights the merits of its diversified orderbook, and implies that the group may come out “relatively unscathed” from the current oil price weakness, which he views as a short-term situation.
“In addition to providing added visibility to 2019 earnings, we also note the contract win involves government contracts in Singapore, which, in our view, may represent a substantial amount of the cumulative wins,” comments the analyst.
“This marks a break from the long hiatus since CSE’s last major tender win in Singapore which involved the ERP2.0, and signals increased tender activity within the domestic market, in line with the government’s Smart Nation initiative. Further wins within this space will add to CSE’s growth momentum in 2019,” he adds.
Noting that the stock is currently trading at a generous dividend yield of 6.5% at the share price of 42 cents, Yeo also believes CSE’s acquisition of Blackstar Services is likely to contribute to the group’s growth momentum.
Similarly, RHB analyst Lee Cai Ling sees the acquisition of Blackstar Services as a potential boost to CSE’s offerings for O&G, and believes the group will be able to continue its winning streak in terms of new contracts going forward.
According to Lee, the new contracts are likely to offset the absence of revenue from its oil and gas (O&G) segment such that there will be no negative earnings from the group in 4Q18 and FY18.
Based on the assumption that 70-80% of the large orders comprise project revenue, the analyst is estimating about $43-49 million in project revenue recognition over the next few years.
“We believe that short-term volatility in the oil prices would not affect CSE’s O&G segment as business flow remains stable,” says Lee.
“However, we do not foresee major greenfield projects coming on-stream anytime soon. Despite the lack of mega projects, we still see growth in the area of smaller brownfield and greenfield projects,” she adds.
As at 11.14am, shares in CSE are trading 1.19% higher at 42 cents or 1.2 times FY18F book value based on both UOB and RHB estimates.
