CSE Global: Comprehensive Analysis and Future Outlook

Broker: Maybank Research Pte Ltd
Date: November 4, 2024

Overview

CSE Global (CSE SP) has been a focus of intense scrutiny and analysis, particularly due to its performance in various sectors. With a promising outlook on electrification and Oil & Gas (O&G) sectors, CSE Global is poised for significant growth. The company is known for providing integrated system solutions globally across the Energy, Infrastructure, and Mining & Minerals sectors.

Recent Performance and Order Book

Despite a slight dip in new orders for the first nine months of 2024, which recorded SGD565.4 million, down 18% year-on-year (YoY), the company shows a robust revenue increase of 20.2% YoY, reaching SGD642.8 million. This revenue growth is slightly ahead of forecasts by 5%, indicating a positive trend. CSE’s order book stands at SGD633.6 million as of the end of 9M24, almost flat YoY despite lower orders obtained during the third quarter of 2024.

Projected Order Wins

Order wins in the third quarter of 2024 were disappointing, amounting to SGD186.7 million, down 37.7% YoY. However, potential delayed orders worth SGD60-80 million are expected to be secured in the fourth quarter of 2024. This anticipation is likely to boost order wins significantly in Q4 2024 and FY 2025, though they may still be lower YoY due to the one-off orders secured in the second half of 2023.

Medium-Term Outlook

The medium-term outlook for CSE Global remains positive. The company is expected to benefit significantly from the electrification landscape and associated opportunities. Management’s confidence in steering the company towards growth is evident, and further contract wins in the electrification space are anticipated. Additionally, potential share buybacks may further demonstrate management’s confidence in the company’s future.

Financial Metrics and Performance

Over the years, CSE Global has shown a strong financial performance with a consistent dividend yield of 6.4%. The company’s financial metrics for the fiscal years ending in December (FY22A, FY23A, FY24E, FY25E, FY26E) indicate growth in revenue, EBITDA, and core net profit. Notably, the company is trading at a significant discount compared to peers, which could warrant a re-rating.

Key Metrics

• Revenue Growth: Projected to grow from SGD558 million in FY22A to SGD1,102 million in FY26E.
• EBITDA: Expected to increase from SGD15 million in FY23A to SGD47 million in FY26E.
• Core Net Profit: Forecasted to rise from SGD23 million in FY23A to SGD39 million in FY26E.
• Core EPS: Anticipated to grow from 3.7 cents in FY23A to 5.7 cents in FY26E.
• Net Dividend Yield: Constant at 6.4% from FY23A to FY26E.

Value Proposition

CSE Global presents a compelling value proposition as a global system integrator on the verge of a multi-year upcycle. The company’s segments in energy, public infrastructure, and data centers are projected to grow significantly in the coming years. The attractive prospective dividend yield of 5.9%+ and trading at a significant discount compared to peers further enhance its investment appeal.

Price Performance

The historical share price trend shows significant fluctuations influenced by various factors, including net profit surges, global sell-downs due to Covid-19, strong orders, and cost overruns. The company’s resilience and strategic measures are evident in its recovery and growth trajectory.

ESG Commitment

CSE Global is committed to sustainability, focusing on reducing carbon emissions and enhancing digitalization. The company has made efforts to reduce its paper consumption index and is negotiating for Sustainability Linked Loans. Despite challenges in meeting carbon emission reduction targets, CSE Global continues to push for more sustainable growth.

Environmental Strategies

• Measure Scope 3 emissions and reduce greenhouse gas carbon emissions.
• Invest in green technology such as energy-efficient electronic equipment, LED lighting, and solar power.
• Reduce paper consumption by 1% annually.

Governance and Social Responsibility

The board consists of eight directors, with a good level of diversity and independent directors. The company has a whistle-blowing policy and conducts regular risk assessments. Efforts to diversify and create an inclusive environment are evident, with a focus on employee development and community support.

Quantitative and Qualitative Parameters

CSE Global’s quantitative parameters highlight its environmental and social performance, while qualitative parameters underscore its commitment to ESG policies and frameworks. The company’s overall ESG score is above average, indicating a well-established framework and internal policies.

Conclusion

CSE Global remains a strong contender in the global system integration market, with promising prospects in the electrification and O&G sectors. The company’s financial performance, strategic initiatives, and commitment to sustainability position it well for future growth. Investors looking for a robust investment with attractive yields and growth potential should consider CSE Global as a viable option.