Overview
CSE Global (CSE SP) has demonstrated significant revenue growth in 2024, despite facing some challenges with new orders. In this detailed analysis, we explore the company’s financial performance, future projections, and the factors driving its growth. We will also delve into the company’s sustainability initiatives and the potential risks involved.
Financial Performance
For the first nine months of 2024, CSE Global reported a revenue increase of 20.2% year-on-year (YoY) to SGD642.8 million, slightly ahead of the forecast by 5%. This growth is attributed to higher operating leverage, which is expected to improve profitability and net margins, excluding a one-off USD8 million settlement.
Order Book and Revenue Projections
Despite securing SGD565.4 million of new orders for 9M24, which is down 18% YoY due to one-off large orders secured last year, the company holds a healthy order book of SGD633.6 million as of end-9M24. New order wins of SGD186.7 million in 3Q24 were disappointing but are expected to pick up significantly in 4Q24 and FY25.
Future Outlook
The medium-term outlook for CSE Global remains positive, particularly in the electrification space. The company is bullish on the landscape and opportunities, with expectations of further contract wins ranging from SGD60-80 million and potential share buybacks to demonstrate management’s confidence. Core net margins are also expected to improve with higher operating leverage.
Company Description
CSE Global provides integrated systems solutions globally across the Energy, Infrastructure, and Mining & Minerals sectors. The company is trading at a significant discount compared to peers, with an attractive prospective dividend yield of 5.9%+. Its strong order book stood at SGD521.8 million as of June 30, 2023.
Statistics
- 52-week high/low: SGD0.49/0.39
- 3-month average turnover: USD1.0 million
- Free float: 62.1%
- Issued shares: 615 million
- Market capitalization: SGD264.4 million
- Major shareholders: Heliconia Capital Management Pte Ltd (22.6%), CSE Global Ltd (4.4%), Fidelity Management & Research Co. LLC (4.1%)
Price Performance
In the past twelve months, CSE Global’s share price has shown significant fluctuations. The price rebounded due to strong orders secured, followed by a set of good results. However, cost overruns on two projects caused a profit drop by 68% YoY to SGD4.8 million. The company also conducted a rights issue at SGD0.33/share, with management subscribing to the excess rights.
Revenue & NPAT Estimates
Revenue (SGD million): FY22A: 558, FY23A: 725, FY24E: 853, FY25E: 968, FY26E: 1,102
EBITDA (SGD million): FY22A: (6), FY23A: 15, FY24E: 26, FY25E: 39, FY26E: 47
Core net profit (SGD million): FY22A: 5, FY23A: 23, FY24E: 21, FY25E: 31, FY26E: 39
Core EPS (cents): FY22A: 0.9, FY23A: 3.7, FY24E: 3.1, FY25E: 4.6, FY26E: 5.7
Net dividend yield (%): FY22A: 8.1, FY23A: 6.4, FY24E: 6.4, FY25E: 6.4, FY26E: 6.4
ESG Initiatives
Environmental
CSE Global plans to measure its Scope 3 emissions and reduce greenhouse gas emissions. Although FY22 targets for reducing carbon emissions have not been met, the company has consistently decreased its paper consumption index. CSE is negotiating with banks for possible Sustainability Linked Loans and plans to disclose its Task Force on Climate-Related Financial discussion roadmap.
Governance
The board comprises eight directors, including the Executive Chairman, the CEO, and seven non-executive directors, 25% of whom are females. CSE has a whistle-blowing policy and conducts a Risk Assessment and Control Self-Assessment exercise. The company recorded zero confirmed incidents relating to corruption in FY2022 and has a zero-tolerance stance against fraud, bribery, and corruption.
Social
CSE Global emphasizes the importance of its employees, with new hire rates at 30% and a turnover rate of 27% as of end-2022. The company adopts flexible work arrangements and has made efforts to diversify and create an inclusive environment. In 2022, CSE donated SGD5,000 to Yellow Ribbon Singapore and granted 30 bursaries to its Singapore employees for further studies.
Quantitative Parameters
GHG Emissions (tCO2e): FY21: 4,649, FY22: 5,167, FY23E: 4,661
% of women in workforce: FY21: 14%, FY22: 15%, FY23E: 16.6%
% of women in senior management roles: FY21: 14%, FY22: 16%, FY23E: 19%
Economic performance (SGD million): FY21: 443, FY22: 510, FY23E: 638
Number of fatalities: 0 (FY21-FY23E)
Key Metrics and Financial Ratios
Core P/E (x): FY22A: 36.5, FY23A: 11.7, FY24E: 13.9, FY25E: 9.3, FY26E: 7.5
P/BV (x): FY22A: 0.8, FY23A: 1.2, FY24E: 1.1, FY25E: 1.0, FY26E: 0.9
Net dividend yield (%): FY22A: 8.1, FY23A: 6.4, FY24E: 6.4, FY25E: 6.4, FY26E: 6.4
FCF yield (%): FY22A: nm, FY23A: 20.1, FY24E: 18.2, FY25E: 17.6, FY26E: 21.8
EV/EBITDA (x): FY22A: nm, FY23A: 22.8, FY24E: 12.3, FY25E: 8.1, FY26E: 6.1
Income Statement Projections
Revenue (SGD million): FY22A: 557.7, FY23A: 725.1, FY24E: 853.5, FY25E: 968.4, FY26E: 1,101.9
EBITDA (SGD million): FY22A: (6.3), FY23A: 14.9, FY24E: 26.4, FY25E: 38.6, FY26E: 46.8
Reported net profit (SGD million): FY22A: 4.8, FY23A: 22.5, FY24E: 20.9, FY25E: 31.3, FY26E: 38.6
Balance Sheet Projections
Cash & Short Term Investments (SGD million): FY22A: 34.2, FY23A: 39.4, FY24E: 69.9, FY25E: 73.7, FY26E: 88.7
Accounts receivable (SGD million): FY22A: 138.1, FY23A: 153.0, FY24E: 136.6, FY25E: 135.6, FY26E: 132.2
Inventory (SGD million): FY22A: 52.0, FY23A: 70.8, FY24E: 83.3, FY25E: 94.5, FY26E: 107.5
Cash Flow Projections
Pretax profit (SGD million): FY22A: 8.3, FY23A: 28.8, FY24E: 26.8, FY25E: 40.2, FY26E: 49.6
Change in working capital (SGD million): FY22A: (21.2), FY23A: 6.5, FY24E: 26.6, FY25E: 11.4, FY26E: 14.0
Free cash flow (SGD million): FY22A: (6.9), FY23A: 53.2, FY24E: 52.8, FY25E: 51.1, FY26E: 63.3
Key Ratios
Revenue growth (%): FY22A: 19.0, FY23A: 30.0, FY24E: 17.7, FY25E: 13.5, FY26E: 13.8
EBITDA growth (%): FY22A: nm, FY23A: nm, FY24E: 76.7, FY25E: 46.2, FY26E: 21.3
Payout ratio (%): FY22A: nm, FY23A: 75.1, FY24E: 88.9, FY25E: 59.3, FY26E: 48.1
Conclusion
CSE Global is poised for substantial growth, with a positive outlook in the electrification space and a solid order book. Despite some challenges in order wins, the company is expected to see significant improvements in profitability and net margins. With strong ESG initiatives and robust financial performance, CSE Global remains an attractive investment opportunity.
