Investment Overview
CSE Global Ltd, a prominent provider of systems integration, information technology solutions, and industrial automation, has been the subject of a detailed company update by UOB Kay Hian. The report maintains a BUY recommendation for the company, citing significant growth opportunities and strategic initiatives in the U.S. market. The target price remains at S\$0.59, offering a potential upside of 38.8% from its current share price of S\$0.425.
Key Highlights
- Legal proceedings in the U.S. over a US\$6 million payment under a standby letter of guarantee (SBLC), which the company expects to recover.
- The divestment of a U.S. property for US\$29.25 million, with plans to reinvest proceeds into a larger facility to support expansion in the electrification sector.
- A robust order pipeline with a 9M24 orderbook of S\$634 million and order intake of S\$565 million.
- Attractive dividend yield of 6.3%, significantly above the FSSTI average of 4.0%.
Legal Proceedings and Impact
CSE Global’s U.S. subsidiary, W-Industries, has initiated legal action in Texas against a customer over an alleged unjustified call on a standby letter of guarantee (SBLC) worth US\$6 million. The SBLC was intended solely for repaying amounts owed under a subcontract. The bank disbursed the amount on December 20, 2024, but the company is actively seeking recovery. While the legal proceedings are in the early stages, UOB Kay Hian expects the recovery of the amount, resulting in minimal impact on the company’s FY24 performance.
Divestment of U.S. Property
The company sold a U.S. industrial property for US\$29.25 million, unlocking capital for the acquisition of a larger facility. Management expects a post-tax gain of US\$9 million from the sale. The divestment aligns with the company’s strategy to enhance asset utilization and leverage growth opportunities in the electrification business. Notably, CSE will continue leasing the divested property, with lease terms yet to be finalized. This move underscores the company’s optimism about its U.S. electrification market prospects.
Robust Order Pipeline
CSE Global has demonstrated strong performance with a 9M24 orderbook of S\$634 million and order intake of S\$565 million. Despite a dip in 3Q24 order wins to S\$187 million (-38% YoY), the company witnessed a rebound in 4Q24. In November 2024 alone, the company secured three major orders worth approximately S\$129 million, primarily in its U.S. electrification business. Additionally, the potential increase in oil and gas drilling activities under the new U.S. administration could create more project opportunities in the future.
Financial Performance and Projections
The company’s financial forecasts reflect steady growth across key metrics:
| Year |
Net Turnover (S\$m) |
EBITDA (S\$m) |
Net Profit (S\$m) |
EPS (S\$ cents) |
PE Ratio (x) |
| 2022 |
558 |
22 |
5 |
0.9 |
47.5 |
| 2023 |
725 |
54 |
23 |
3.7 |
11.6 |
| 2024F |
860 |
66 |
22 |
3.2 |
13.1 |
| 2025F |
823 |
65 |
29 |
4.3 |
9.8 |
| 2026F |
889 |
69 |
33 |
4.9 |
8.6 |
Key financial highlights include:
- Revenue is forecasted to grow from S\$725 million in 2023 to S\$889 million in 2026.
- EBITDA margins are expected to improve slightly from 7.5% in 2023 to 7.8% by 2026.
- Net profit is projected to rise to S\$33 million in 2026, translating to an EPS of 4.9 S\$ cents.
- Dividend yield remains stable at an attractive rate of 6.5%.
Valuation and Recommendation
UOB Kay Hian maintains a BUY recommendation for CSE Global with a target price of S\$0.59. The valuation is based on a 13x 2025F PE, pegged at +1 standard deviation above the mean. The strong order pipeline, strategic initiatives in electrification, and attractive dividend yield create a compelling case for investment.
Stock Catalysts
Potential catalysts for CSE Global’s share price include:
- Winning large infrastructure projects.
- Accretive acquisitions that enhance market presence and profitability.
- Continued growth in the U.S. electrification market driven by strategic investments.
