Results First Take: FY21 net profit below expectations; better outlook with improving new order wins
- FY21 net profit below expectations on lower margins
- Weak revenue from the Americas region cushioned by recovery-led growth in the Asia Pacific and EMEA
- Expect higher new order wins for the Energy segment on rising US oil production along with high oil prices
- We currently have a BUY call with TP of S$0.60
Results Review
Weak revenue from the Americas region cushioned by recovery-led growth in the Asia Pacific and EMEA regions. FY21 revenue declined 6.8% y-o-y to S$468.7m. The weaker revenue is mainly attributed to a drop in large project revenues and lower time and material revenues in the Americas region. Revenue from the Americas region dropped 17.2% due to volatility in energy prices and the ongoing Covid-19 pandemic. Nonetheless, the drop in revenues was cushioned by recovery-led growth in the Asia Pacific and EMEA regions. Revenue from the APAC region grew 9.1% on the back of higher recognition of revenue from infrastructure projects in Australia. Revenue from the EMEA region rose by 132.5% with contributions from new acquisitions in the United Kingdom.
FY21 net profit below expectations on lower margins. EBITDA saw a -26.8% change y-o-y at S$42.8m. This was largely due to higher unabsorbed labour costs and higher distribution costs which resulted in higher operating expenses. Net margin eased to 3.2% from 5.6% in FY20, leading to a 46.2% decline in net profit to S$15.1m, 16% below our estimates.
Proposed final dividend of 1.50 Scts/share, unchanged from FY20. Including its interim dividend of 1.25Scts/share, CSE’s total dividend per share in FY21 is 2.75Scts/share. This works out to a payout ratio of 218%, vs 102% in FY20.
CSE’s FY21 new order intake increased 7.1% y-o-y to S$462.1m, 5% above our expectations. This was due to higher time and material jobs coupled with newly awarded power and electrification projects in its Energy segment, as well as higher orders of radio communication equipment and solutions from utility and government customers in its Infrastructure segment. The last quarter saw a strong y-o-y growth across all segments. The beat in expected new orders was mainly due to a stronger-than-anticipated recovery in its Energy segment.
Our Thoughts
US oil production rises along with oil prices bodes well for CSE. We are beginning to see signs of oil production rise in the regions that CSE is operating in. We believe that the positive correlation between these two datasets is starting to resume and could bode well for CSE as higher oil production have historically meant higher revenues for its Energy segment. In our view, the significantly higher and outlook for sustained levels of elevated oil prices should raise oil and gas activities and could potentially translate into large contract wins for CSE.
Expect higher new order wins for the Energy segment. New order win for the Energy segment has been on a down trend in the last two years. The recent surge in oil prices, partly due to the current situation in Ukraine could present additional opportunities for the group’s Americas operations as its customers are likely to increase their investments.
Good start to the year with US$57.6m contract wins. CSE has secured two major contracts worth US$57.6m (approximately S$78.1m) in the Americas region. These projects are expected to contribute in 2022-2024. The first major contract is for the design, engineering, fabrication, installation and integration of complex electrical and mechanical systems and solutions for the data-centre market, which is slated for execution from Q2 2022 to Q4 2023. The second major contract, which has a duration of 3 years concluding on 31 December 2024, relates to the maintenance and refurbishment of building management control systems for an offshore facility.
We currently have a BUY call with TP of S$0.60. More updates after briefing in the morning.