Elevated opex still an overhang
? 2H21 net profit of S$4.9m (-62% yoy) was below our expectations on lower energy margins. FY21 net profit at 72%/73% of our/consensus’ forecasts.
? Order wins rebounded to S$131m in 4Q21, driven by energy wins. Positively, CSE has already won two large contracts in Feb 2022 worth S$78m.
? Higher opex and tight supply chains expected to persist in 1H22F. Reiterate Add at a lower TP of S$0.57, pegged to 12x FY23F P/E (10-year average).
2H21 missed expectations on lower energy margins
2H21 net profit of S$4.9m (-51% hoh, -62% yoy) was below our expectations on lower energy margins. 2H21 energy EBIT deteriorated to a S$1m loss (vs. 2H20: S$9m profit), attributed to 1) higher unabsorbed labour costs, 2) execution of lower-margin projects, and 3) increased depreciation expenses. This brings FY21 net profit to S$15m (-46% yoy), below expectations and forming just 72%/73% of our/consensus’ forecasts. FY21 infrastructure revenue rose to a record high of S$144m (+34% yoy), supported by a steady pipeline of digitalisation and security projects. The group proposed a final DPS of 1.5 Scts, bringing FY21 DPS to 2.75 Scts (5.7% dividend yield).
4Q21 order wins rebounded; further S$78m won in Feb 2022
Order wins rose to S$131m in 4Q21 (+9% qoq, +33% yoy), the highest level observed since S$230m in 4Q19, largely driven by stronger energy order wins of S$86m (+16% qoq, +36% yoy) from 1) more time and material jobs, and 2) new power and electrification projects. This brings FY21 order wins to S$462m (+7% yoy), with energy and infrastructure order wins growing 5% yoy and 24% yoy respectively. The group’s FY21 order book stood at S$229m (vs. end FY20: S$236m), with c.70% expected to be recognised in FY22F. As announced on 28 Feb 22, the group won two major contracts (1 energy, 1 infrastructure) worth a total of S$78m, to be executed across FY22-24F.
Outlook still challenging in 1H22F; infra wins could surprise
Management expects higher opex and tight supply chains to persist in 1H22F. Less greenfield energy projects are expected as customers stay cautious on O&G capex spend. However, we think the recent infrastructure contract win (first major data-centre project won) could pave the way for more order wins in this field. Overall, the group expects to achieve a better financial performance in FY22F. We keep our FY22F order wins estimate at S$495m but lower our FY22-23F EPS by 11-23% to reflect higher opex.
Reiterate Add at lower TP of S$0.57; decent 5.7% dividend yield
While near-term margins could be under pressure, we still like CSE for its diversification into higher-margin infrastructure projects and decent 5.7% dividend yield. We introduce our FY24F forecasts and lower our TP to S$0.57, based on 12x FY23F P/E (10-year average). CSE currently trades at 10x FY23F P/E, which is approximately -0.7s.d. from 10-year historical mean. Re-rating catalysts include higher-than-expected order wins. Downside risks are rising costs and slower recovery in the energy segment.