Strong Order Wins For 1Q22 But Delivery Remains Challenging
CSE reported a strong order intake of S$232m (+119% yoy) in 1Q22 due to a major
contract for the data-centre and wastewater markets in the Americas region,
bringing its orderbook to S$344m (+49% yoy). However, CSE continued to face
supply chain constraints which delayed the delivery of new equipment or
components. These challenges will continue to impact CSE’s earnings for 1H22.
Maintain HOLD and target price of S$0.44.
WHAT’S NEW
• Strong order intake. CSE Global’s (CSE) order intake surged by 118.8% yoy to
S$232.3m, attributed to a major contract secured to provide engineering solutions for the
data-centre market and higher field services orders for the wastewater market in the
Americas region, as well as stronger orders of radio communication equipment and
solutions led by utility and renewables customers in Australia. In total, these boosted
CSE’s orderbook to S$344m (+49% yoy). The order win is ahead of our expectation of
S$520m in order wins for 2022, but the order could be lumpy in nature as it is a large
project.
• Marginal growth in revenue. CSE’s revenue was 5.8% higher yoy at S$117.6m in
1Q22, attributable to growth in infrastructure projects in the Asia Pacific region,
particularly from utility and government customers in Australia. The energy sector’s
revenue fell 16.0% yoy, mainly attributable to lower large project revenue recognised in
the Americas region. Infrastructure revenue improved 56.6% yoy, mainly driven by higher
revenue contributions across all key geographies of Australia, Singapore, the UK and the
US due to increased investments in public and critical infrastructure. Mining & Minerals’
revenue increased by 3.8% yoy, as projects started to see more progress due to the
easing of COVID-19 restrictions, compared to 1Q21 which saw delays in project
execution due to poor weather conditions and COVID-19 disruptions.
• Deliveries of orders remain challenging due to supply chain constraints. CSE has
continued to face supply chain constraints, which have affected some of its current
projects. Delivery of equipment was delayed and longer lead time is needed for
purchases of new equipment or components. These operational challenges will continue
to weigh on the financial performance of the group in 1H22, but this is expected to
improve in 2H22. These challenges could impact CSE’s margins due to higher
operational costs which include materials and wages.
STOCK IMPACT
• Cautious on supply chain challenges and inflationary pressure. The current global
economic outlook is impacted by supply chain disruptions and inflationary pressures, which
will continue to create uncertainty. While there was a lack of large greenfield projects in the
Energy sector, CSE continues to see stable financial performance in the Infrastructure and
Mining & Minerals sectors, supported by a steady stream of projects arising from
requirements in digitalization and enhancements in physical and cyber security. Despite the
operational challenges brought about by the supply chain disruption, CSE will continue to
execute the S$344m orderbook as at 1Q22. It will also focus on improving its core business
and drive its expansion into new geographical markets for Energy, Infrastructure and Mining
& Minerals sectors with a view to securing additional order opportunities.
• Dividend yield is attractive at around 6.0%. We expect the group to maintain its fullyear dividend at 2.75 S cents/share for 2022, translating to an above-average dividend
yield of 6.0% vs the FSSTI’s of around 4.0%.
EARNINGS REVISION/RISK
• We maintain our earnings forecast.
VALUATION/RECOMMENDATION
• Maintain HOLD and PE-based target price of S$0.44, pegged to 13x 2022F PE (+1SD
above mean). Our target price implies a dividend yield of 6.3%.
SHARE PRICE CATALYST
• Large greenfield O&G and infrastructure project wins.
• Recovery in oil prices.
• Accretive acquisitions.