CIMB analyst: Yeo Zhi Bin (left)
We trim FY14 EPS by 2% due to higher taxes but keep our FY15-16 EPS forecasts. Given its stabilising operations and FY14-16 dividend yields of 4-5% that would be supportive of valuations, we turn positive on CSE and upgrade it from Reduce to Hold. Our target price (70 cents) is raised as we roll over to 9x CY16 P/E (its 5-year mean) from 9x CY15 P/E.
CSE’s 3Q14 revenue rose 15% yoy to S$112m on the back of increased instrumentation and electrical installation activities on board offshore platforms in the US Gulf of Mexico (GOM), contributions from the Ichthys LNG projects (absent in 3Q13) and more activities for Australian brownfield mining projects. Turnover from Europe/Middle East/Africa (EMEA) dropped 21% yoy as the projects there approached tail-end. We expect EMEA activities to remain muted over the next 2-3 quarters. 3Q14 gross margin remained stable at 28% but CSE’s core net profit increased at a faster rate to S$9.4m (+40% yoy), thanks to better cost management. Its SGA costs fell to 15.6% of sales in 3Q14 (3Q13: 17.2%). As most of its legacy projects have been delivered, the telecom division’s profit contributions have risen over the last two quarters.
Encouraging order intake
FY14-16 dividend yields of 4-5% support valuation
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