CSE Global DBS Group Holdings
CSE Global, which provides engineering services to the oil and gas sector, suffered when oil prices slump and customers cut back their capital expenditure.
From the trough of US$50 per barrel back in Oct 2016, oil prices have increased to around US$70 and with the tensions flaring up in the Middle East again, set to remain at a certain level. CSE Global is set to be a beneficiary of this trend.
For its most recent 3Q ended Sept 30, 2019, CSE Global reported earnings of $5.7 million, up 17.8% y-o-y. Revenue in the same period was up 21.9% y-o-y to $111.5 million. This improved year-on-year showing is a continuation of earnings growth already chalked up earlier in 2019. For the nine months to Sept 30, 2019, CSE Global reported earnings of $15.6 million, up 6.8% y-o-y. Revenue in the same period was up 7.7% y-o-y to $295.2 million.
On Oct 29, the company announced that it won two new oil and gas project contracts worth US$74.7 million or $103.7 million in the Americas, which involves design, fabrication and construction, engineering and integration of production control systems and equipment. “These projects are expected to contribute positively to CSE’s financial performance for the FY2020 and beyond,” says the company’s group managing director Lim Boon Kheng. These two new orders brought CSE Global’s total order book to $348.8 million.
In a previous interview with The Edge
Singapore, Lim was positive that the company will continue its growth trajectory, especially having pulled through the previous oil and gas slump. “We are pretty confident we will have y- o- y growth, higher profit, higher revenue in 2019,” said Lim, adding that the company’s key challenge was to find new growth areas and continue to improve on earnings.
Lim’s confidence comes from the nature of CSE’s business of providing engineering services for large-scale projects such as those in infrastructure. Such projects require years of planning and are unlikely to be aborted midway.
To this end, Lim has been diversifying CSE’s business through its expansion into the shale industry. “If we continue to work in the offshore market alone, we will be very curtailed in our operations. So we moved onshore,” noted Lim who says the revenue split between CSE’s offshore and onshore markets shifted from 90% versus 10% in FY2015 to 54%:46% in FY2018.
On top of the recovery of the oil and gas sector, CSE Global has been making inroads into a different market, the infrastructure sector too. Specifically, it is trying to win contracts to deliver so-called smart city systems for the Singapore and Australian public sector clients.
As the company’s 9M2019 financial results have shown, the infrastructure business is one that has generated higher margins compared to the oil and gas contracts. While infrastructure projects accounted for just 26% of the revenue, they accounted for 42% of the earnings before interest and tax.
With various positive factors like these, CSE Global has drawn active and bullish coverage from five brokerages: DBS Group Research, UOB Kay Hian, CGS-CIMB, KGI Securities and RHB, with price targets ranging between 61 and 73 cents.
CSE Global’s share price closed at 56 cents on Jan 13, up more than 46% since the start of 2019. At this level, the company is valued at 14 times historical earnings and has a market value of $284.5 million. —