Sitting on a large Infra order book
- 2H23 net profit rebounded strongly to S$11m (2H22: S$0.2m), with EBIT growth (+272% yoy) partially offset by higher interest costs (+47% yoy).
- CSE expects a yoy net profit growth in FY24F. Growing mix of Infrastructure projects should drive FY24-26F OPM margin expansion, in our view.
- Reiterate Add on strong earnings outlook and decent 6.4% yield. Our TP is raised to S$0.62 as we rollover to 12x CY25F (FY12-19 average).
Strong yoy earnings rebound, FY23 DPS unchanged at 2.75 Scts
CSE’s 2H23 net profit of S$11.5m (2H22: S$0.2m) was in line, with FY23 net profit of S$23m (+372% yoy) forming 100% of our and 105% of Bloomberg consensus’ full-year forecasts. 2H23 revenue grew robustly to S$376m (+8% hoh, +27% yoy) on quicker project executions across US and Asia. EBIT rebounded to S$20m (flat hoh, +268% yoy), driven by 1) turnaround of loss-making Energy business following restructuring, and 2) Infrastructure (Infra) margin expansion from stronger operating leverage. CSE proposed a final DPS of 1.50 Scts, with FY23 DPS holding steady at 2.75 Scts (unchanged yoy).
Ending the year with c.S$1bn in order wins
4Q23 order wins were strong at S$300m (flat qoq, +24% yoy), led mostly by surging infra wins (-3% qoq, +55% yoy) from two major electrification contracts (worth a combined S$151m) won in the US, while energy order wins declined (+5% qoq, -29% yoy). This brought FY23 order wins to S$990m (+21% yoy), in line with CSE’s guidance of c.S$1bn.
Strong revenue visibility, longer-term margin expansion
CSE shared that equipment lead times have improved slightly yoy, while current headcount is sufficient barring exceptionally strong order wins. Backed by a record high order book, CSE sees net profit growth in FY24F. We expect strong FY24F revenue growth of 16% yoy, premised on quicker order book executions from shorter lead times and ramp-up in US Infra business. With a good bulk of Infra orders set to be executed in FY24F, we expect Infra revenue to rise to c.53% (FY23: 47%) of group revenue, driving OPM expansion given the higher-margin nature of Infra contracts, in our view. While we expect interest costs to stay elevated and peak in FY24F, we see room for CSE to lower its net gearing (FY23: 0.35x) on the back of healthy operating cashflows.
Reiterate Add with a higher TP of S$0.62, yield decent at 6.4%
We cut our FY24-25F core EPS by 1-3% on slightly higher interest expense assumptions. Reiterate Add as we like CSE for its healthy earnings growth trajectory and decent FY24F dividend yield of 6.4%. Our TP is raised to S$0.62 as we roll forward our valuation to 12x CY25F P/E, still pegged to the FY12-19 average. Re-rating catalysts: strong infra order win momentum, large greenfield energy project wins, and consistent margin improvements. Downside risks: major project cost overruns, and a sharp decline in order wins as clients pull back on spending
