Maybank Securities analyst Jarick Seet is keeping his “buy” call and target price of 60 cents unchanged on CSE Global 544 following the company’s 9MFY2024 ended Sept 30 update.
In the period, CSE Global new orders dipped 18% y-o-y to $565.4 million, which Seet notes is slightly disappointing due to one-off large orders secured last year.
On a more positive note, revenue in the 9MFY2024 grew 20.2% y-o-y to $642.8 million, beating Seet’s forecast by 5%.
Seet writes in his Nov 4 report: “With higher revenue and operating leverage, we expect profitability and net margins to increase, excluding the one-off US$8 million ($10.6 million) settlement. [CSE Global] has a healthy order book of $633.6 million as at end 9MFY2024, almost flat y-o-y despite lower orders obtained during 3QFY2024.”
He adds: “We expect order wins to pick up in 4QFY2024 and FY2025, and remain positive on CSE due to its positive outlook and attractive yield of 6.4%.”
In the 3QFY2024, CSE Global won $186.7 million in new orders, which was 37.7% lower y-o-y.
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“However, we understand it’s mainly due to delay in potential order wins worth $60 to $80 million that should likely be won in 4QFY2024 instead,” writes Seet.
While the analyst expects a pick up in order wins in the coming quarter, he notes that order wins could still be lower y-o-y due to 2HFY2023’s one-off orders.
He writes: “We also expect order wins to likely be more evenly distributed going forward.”
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Overall, Seet remains bullish on the electrification landscape and opportunities, and CSE Global’s ability to get the company back on track. The analyst expects further contract wins in the electrification space in the near-term, as well as potential share buy backs to demonstrate CSE Global’s confidence.
He concludes: “Lastly, we also expect core net margins to improve with higher operating leverage.”
Upside swing factors noted by him include 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 and an attractive dividend yield of 6%.
Other swing factors include potential further mergers and acquisitions (M&A) to boost profitability, CSE Global offering upside to the US oil and gas upcycle and finally, strong potential growth in US-based data centres.
Conversely, downsides include potential execution errors causing cost overruns, a recession which could cause business and orders to slow down and lastly, foreign exchange (forex) fluctuations which could impact profitability as the company operates in many countries.
As at 11.05 am, shares in CSE Global are trading 0.5 cents higher or 1.18% up at 43 cents.
