RHB Bank Singapore has initiated coverage on CSE Global 544 with a “buy” call and target price of 58 cents, given its exposure to global growth and green energy across diversified segments.
RHB’s Alfie Yeo forecasts a compound annual growth rate (CAGR) of 16% for the group’s earnings between FY2023 to FY2026 earnings driven by its current strong orderbook, especially the electrification segment and acquisitions in the communications segment.
Yeo notes that CSE is a systems integrator providing electrification, communications and automation solutions, offering exposure on green energy such as renewable energy (RE) and EV infrastructure, critical communications and infrastructure development across US, UK, Singapore, Australia and New Zealand.
According to Precedence Research, the US electrification market is forecasted at US$30.28 billion ($40.56 billion) in 2024 and is projected to be US$72.94 billion in 2034, growing at a 9.2% CAGR during the forecast period.
This is driven by green energy adoption leading to electrical infrastructure development for electrification systems and infrastructure where CSE is a beneficiary.
“We see growth driven by the electrification and communications segments, with the automaton segment’s outlook remaining stable,” Yeo says, noting that the electrification segment is driven by infrastructure and RE development.
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This is due to increasing demand for electricity due to digitisation, information technology (IT), automation, more data centres (DC), adoption of EV, more efficient utility installation which drives more power grid electrification.
The growth in the communications segment will be supported by acquisitions in the US, where it is looking to increase its contributions.
CSE’s critical communications business is present in the UK, US, Australia and New Zealand and Singapore.
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The group recently announced the US$11.5 million acquisition of RFC Wireless Inc, an advanced communications solutions provider. The acquisition is earnings accretive and will contribute around 13% to CSE’s existing net profit, based on net profit ended 31 December 2023.
Additionally, Yeo notes that CSE has a “robust” orderbook of $634 million as at September 2024, while its order intake continued to be strong at $565 million.
CSE typically recognises 50% - 150% of the previous year’s order revenue.
Yeo identifies key downside risks as including unforeseen project cost overruns and arbitration by customers for failure to deliver its services, which can potentially dampen earnings and margins.
As at 4.52pm, shares in CSE were trading flat at 46.5 cents.
