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Diversification cushions risks

  • CSE reported a 3Q21 EBITDA of S$9.9m (-27% qoq, -23% yoy), in line with our expectations. 9M21 EBITDA of S$33.5m formed 78% of our FY21F.
  • 3Q21 order intake was encouraging at S$120m, the highest since 1Q20, mainly from the energy sector. YTD order win is S$330m (vs. our S$460m).
  • Stronger-than-expected order wins are a key catalyst. Reiterate Add and an unchanged TP of S$0.61, still based on 12x FY22F P/E.
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3Q21 lower revenue and margins, stronger infrastructure yoy

3Q21 revenue of S$116m (-6% qoq, -2% yoy) was in line with our expectations, at 24% of our FY21F forecast. There was a broad base decline in revenue across segments, with certain projects’ execution timeline pushed to the right, as requested by some customers. In line with lower revenue, 3Q21 EBITDA declined to S$9.9m, reflecting higher selling and distribution-related costs in preparation for the resumption of sales activities in key markets. EBITDA margin declined to 9% accordingly, in line with our forecasts. Yoy, the infrastructure segment registered the highest revenue growth of 43% to S$37m, thanks to stronger pipelines of projects across Australia, Singapore and the UK. Energy segment. Energy segment registered a 5% qoq and 12% yoy decline in revenue to S$68m.

New orders spurred by energy segment; infra: 60% of order book

3Q21 new order wins came in strong at S$120m (+15% qoq, +32% yoy), the highest level observed since 1Q20’s S$127m. This brought 9M21 order wins to S$331m, forming c.72% of our FY21F forecast of S$460m. The strong recovery was largely attributed to new energy order wins of S$74m (+48% qoq, +52% yoy), driven by higher flow of work and newly awarded power and electrification projects. Infrastructure new orders rose 19% yoy to S$36m, on the back of increased orders from government customers in Australia. The group’s order book stood at S$217m as at end-3Q21 (vs. S$212m in 2Q21). Infrastructure projects accounted for 60% of order book and energy 30%.

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Cautious of Americas but positive on Infrastructure and mining

Management is cautious of supply chain disruptions and see higher opex and sales costs in the Americas in the coming quarters possibly affecting the energy sector. This is offset by increasing demand for digitalisation and enhancements in physical and cyber security. This means a continuous project pipeline in the infrastructure and mining and minerals sectors.

Reiterate Add and TP of S$0.61; average dividend yield at 5%

Cashflow from operations in 3Q21 was stable at S$6m (1H21: S$15m). We like CSE Global for its business diversification and decent 5% average dividend yield. With Temasek being a 25% shareholder of CSE, we see collaboration opportunities between
CSE and other Temasek-owned companies (including Singtel’s enterprise segment and STE’s urban solutions, in our view). Our TP is based on 12x FY22F P/E (10- year average). Re-rating catalysts include higher-than-expected order wins. Downside risks
are lower order wins and slower-than-expected recovery in the energy segment.