CSE Global Q318: Steady ship despite lull and cautious market.

Since my previous post on CSE Global, its share price reached a recent high of S$0.515 but has now retraced back down to S$0.45. Just to update on its quarterly earnings, in Q318, CSE continues to secure new orders from greenfield (new installations) projects and brownfield (maintenance, upgrade and enhancement of existing installations) projects amounting to S$80.9 million. CSE’s order book decreased from S$148.8 million a quarter ago to S$136.5 million as more projects were completed and billed.

Source: CSE Global results briefing

• Gross margins stabilized around 27% on better infrastructure and O&G divisional margins.
• Strong improvement in net profitability.
• Strong positive operating cash flow +S$25m.
• Stable order intake of S$81m despite lull in large O&G greenfield projects, as well as a
lacklustre mining and mineral segment.

• Large greenfield projects remains lull.

Positive momentum for the rest of the year:

Oil & Gas

  • 9M18 revenue up 12.6% to S$276.7m from 9M17: S$245.6m on improved oil and gas divisional income, which grew 12.7% during the period.
  • Expect steady inflow of small greenfield and brownfield for both onshore and offshore projects.
  • However, no order expected for large greenfield projects.

Infrastructure and Mining & Mineral

  • 9M18 for infrastructure division improved and grew 17.5%,  likely due to
    continued communication work in Australia.
  • Expect steady inflow of small greenfield and brownfield as the industry recovers from slump of recent years.

Although the current improvement in oil and gas and commodity prices has not
translated into significant investments in large greenfield projects in the
markets as customers remain focused on cost control and cash-flow generation. Nevertheless, CSE Global continued to see a steady flow of smaller projects in US and Australia.

CSE’s earnings recovery from FY17 looks positive for the remaining of FY18, attributed to higher GPM, firmer contract execution. Its net cash position strengthened to S$34.4m (6.67Scts/share) should provide some comfort if the order flow is delayed. The stock also offers a decent dividend yield of 6.3%.

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Categories Deep Value Investing

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