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Analysts bullish on CSE Global following robust FY2023 results

Douglas Toh
Douglas Toh • 3 min read
Analysts bullish on CSE Global following robust FY2023 results
The company's FY2023 earnings beat all analysts' expectations. Photo: Albert Chua/ The Edge Singapore
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Analysts from CGS International, Maybank Securities and UOB Kay Hian have all kept their “buy” and “add” calls on CSE Global 544

following its FY2023 earnings that surged by 372% y-o-y to $22.5 million. The dividend for the year has been held steady at 2.75 cents per share. With its hefty new orders of some $300 million, CSE Global can provide clear revenue growth.

For CGS International's Kenneth Tan and Lim Siew Khee, CSE Global's 2HFY2023 ended Dec 2023 with earnings of $11.5 million which was in-line with expectations, as was full year 2023. 

For the current FY2024, they expect CSE Global to grow its revenue by 16% y-o-y, from quicker order book executions due to shorter lead times and a ramp-up in its US infrastructure business.

“With a good bulk of infrastructure orders set to be executed in FY2024, we expect infrastructure revenue to rise to around 53% (from FY2023’s 47%) of [overall] revenue, driving operating profit margin expansion given the higher-margin nature of infrastructure contracts, in our view,” write Tan and Lim.

As they expect the company to incur higher interests this current FY2024, they have trimmed their FY2024 and FY205 earnings estimate by 1% to 3%. 

Nonetheless, they see room for CSE Global to lower its net gearing from FY2023’s 0.35 times, on the back of healthy operating cash flows.

See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call

Following this, their raised target price of 62 cents is based on a rolled forward valuation to 12x calendar year 2025 price-to-equity ratio (P/E), still pegged to the FY2012 to FY2019 average.

Re-rating catalysts noted by the analysts include a strong infrastructure order win momentum, large greenfield energy project wins, and consistent margin improvements.

Downside risks, meanwhile, include major project cost overruns, and a sharp decline in order wins as clients pull back on spending.

See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%

Meanwhile, Jarick Seet of Maybank Securities likes the stock for its unique opportunity of riding the upcycle in attractive growth areas, accompanied by a sustainable 6.5% dividend yield. 

He points out that CSE Global is also trading at a significantly lower PE of 15x FY2024 earnings, versus 20 to 30x forward PE fetched by its US competitors.

The analyst also expects the company to secure more communications and electrification orders worth some $1.1 billion in FY2024. 

The company also offers upside to the US oil and gas upcycle, while a strong potential growth in data centres in the US is likely to benefit CSE, says Seet.

This will help put CSE Global on a "clear multi-year growth ahead", adding further accretive acquisitions along the way as well, which would boost its growth to a more rapid pace, he reasons.

Seet has raised his earnings estimate for FY2024 and FY2025 by 10% and 23.4% respectively, thereby deriving a new target price of 71 cents, which is based on 15x FY2024 earnings. His previous target price was 65 cents.

On the other hand, although the company’s earnings also beat the expectations of John Cheong and Heidi Mo at UOB Kay Hian by 7%, they have lowered their target price from 61 cents to 57 cents, which is now pegged to 14 times FY2024 P/E, based on 1 standard deviation (s.d.) above mean.

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They explain that this is down from 15 times FY2024 P/E previously, as the P/E mean multiple has fallen.

Overall, the analysts at UOB Kay Hian agree with their peers on the company’s strong FY2023 results and outlook for the year ahead.

They have kept their FY2024 earnings forecast at $25 million and have raised estimates for FY2025 by 1% to $28 million. 

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