CSE Global
Proxy to data centre growth
Jarick Seet of Maybank Securities has maintained his “buy” call and 64 cents target price on CSE Global, given how this company is tapping on growing trends in electrification and data centres.
On April 30, CSE announced it had won $186.2 million in new orders in 1QFY2024 ended March, up 16.7% y-o-y. Out of which, the electrification segment secured about $82.9 million of new orders or about 44.5% of total order intake.
Seet, citing the company’s management,
says demand for electrification solutions will remain “robust” given the strong pipeline of projects. “We expect electrification to be one of the main growth drivers for CSE in the next two to three years,” writes Seet in his May 1 note.
The order wins announced for 1QFY2024 excludes a $49.2 million data centre contract announced on April 18, which means total order wins for 2QFY2024 could be stronger. The client is likely a main player in this industry and that similar contracts will be won down the road. “AI technology and data centres require huge amounts of energy to develop and run and will benefit power management system integrators like CSE,” says Seet.
For its 1QFY2024, which has been its seasonally weakest period, CSE reported revenue growth of 24% y-o-y to $197.5 million, which is above Seet’s blended y-o-y projection of 17%.
With better operating leverage due to strong revenue growth, as witnessed in FY2023, Seet expects CSE’s margins to further improve from 3.1% in FY2023 to 3.5%–4% in the current FY2024, thus, justifying his projection that CSE’s core earnings for FY2024 will grow by 26%.
“CSE offers a unique opportunity to ride the upcycle in attractive growth areas. It also offers a sustainable 6.5% dividend yield. We believe CSE has a clear multi-year growth outlook and we expect further accretive acquisitions, which could accelerate its growth,” says Seet.
“The counter is trading at 7.6 times FY2025 earnings on a 6.5% dividend yield, we think it is under-valued,” he adds. — Douglas Toh