Analyst Jarick Seet of Maybank Securities is keeping “buy” on CSE Global 544 after the company secured a $49.2 million extension to an existing contract.
“We believe this increases the chances of another extension in the future. It also demonstrates CSE’s capabilities, especially in the cloud/artificial intelligence (AI)-data-centre market, and it should be able to secure more data centres from new customers in the near future,” writes Seet in his April 24 report.
The extended contract, secured in 1QFY2022, is from a US customer for a data centre, and is intended for the complete design, manufacture and installation of power management systems from 2QFY2024 to 4QFY2025.
Seet believes there are “only a handful” of cloud providers in the US and he expects this space to do well with the majority of players building more data centres from the robust demand for AI applications and other digital services.
“We expect CSE to continue to benefit from this and secure more and larger contracts from existing and new customers in the US,” continues the analyst.
That said, Seet has lowered his target price estimate to 64 cents from 71 cents previously following the company’s placement to reflect the dilution of its shares.
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CSE placed 60 million new shares on March 25, raising net proceeds of about $23.2 million at 40 cents a share, which Seet notes was “fully subscribed” by institutional and accredited investors.
He adds that the proceeds will be used to fund strategic acquisitions and investments in the critical communications and electrification segments in Australia and the US.
“We also expect these acquisitions to be accretive and should be completed by 3QFY2024,” adds Seet.
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Overall, the analyst likes CSE Global for its “unique opportunity” of riding the upcycle in attractive growth areas and its sustainable 6.6% dividend yield.
He concludes: “We believe CSE has a clear multi-year growth and we expect further accretive acquisitions, which would boost its growth to a more rapid pace.”
Upside risks noted by Seet include a share price re-rating due to a strong net profit after tax (NPAT) growth of 250% in FY2023 and 30% y-o-y in FY2024, the stock trading at a significant discount compared to peers which should also warrant a re-rating, its attractive dividend yield of 6%, potential further merger and acquisitions (M&As) to boost profitability, its upside to the US oil and gas upcycle, and lastly, its strong potential growth in data centres in the US.
Conversely, downside risks include potential execution error causing cost overruns, a recession which may cause business and orders to slow down, and finally, foreign exchange (forex) fluctuations which may impact profitability as CSE Global operates in many countries.
As at 1.45 pm, shares in CSE Global are trading at 0.5 cents lower or 1.18% down at 42 cents.
