Excerpts from CGS-CIMB report
Analyst: Cezzane SEE
■ CSE announced that it has secured new oil and gas contracts worth a cumulative US$74.7m (S$103.7m).
■ We keep our forecasts, call and TP. CSE remains one of our favourite small-cap stocks due to its steady EPS growth and dividends
Two new projects from the Americas totaling c.S$100m
● The two new oil and gas contracts involve a wide range of projects to support the production of subsea wells, operation of subsea gas trunk lines and other subsea infrastructure.
● According to CSE’s announcement, these projects are expected to contribute positively to its financial performance from FY20F and beyond; as such, we believe these projects could be executed over the next 2-3 years.
● Assuming net profit margin of 5.5% (achieved in 1H19), these projects would yield S$5m to CSE’s bottomline when completed.
Bolstering its order book!
● The wins take cumulative reported FY19 order wins to S$269m (order intake as at 1H19 was S$193.9m) and assuming further intake of S$200m in 2H19F (estimated flow projects) and revenue recognition of c.S$200m in 2H19F, CSE could end FY19F with order backlog of at least c.S$300m (vs. end-2Q19 order backlog of S$188m).
● If so, this could also be the highest order backlog CSE has reported in the past five years.
● CSE will report its 3Q19 results on 6 Nov, and host an analyst briefing on 7 Nov.
● We estimate 3Q19F revenue at S$105.3m, on higher project execution in 3Q19F, and expect core net profit of c.S$5.9m and net profit margin of 5.5%.
● We expect 9M19F revenue at S$292.9m and core net profit at S$15.5m.
● CSE has been our preferred small-cap O&G pick due to its i) sustained earnings growth, ii) healthy balance sheet, and iii) secure dividend payout. These large greenfield projects further solidify its appeal.
● We maintain our forecasts pending its upcoming results.
● Target price is still based on 13.5x FY20F P/E (+0.5 s.d.of its 5-year average mean due to a better footing from FY19F onwards).
● Stronger-than-expected order wins and GPMs are potential re-rating catalysts.
Lower-than-expected order wins and GPMs are key downside risks to our Add call.
Full report here.