Excerpts from RHB Research report
|Analysts: Lee Cai Ling & Jarick Seet
Positive for FY19; Maintain BUY
♦ Maintain BUY, and high end of consensus TP of SGD0.61, 22% upside plus 6% yield.
We expect revenue to catch up in the next two quarters.
As such, we remain positive on this counter, and even included it in our “20 Jewels 2019 Edition”.
♦ 1Q19F revenue had reflected a slower start to FY19. We expected 1Q19F revenue at SGD92-95m – the lowest among the four quarters.
Also, contribution from RCS Telecommunications Pty Ltd should only come in 2Q19. However, reported revenue fell short of our forecast, at SGD85.4m. We understand that there is a delay in certain projects, and we estimate it to be SGD6-8m.
We believe it will catch up in the next two quarters. We also expect better core net profit (1Q19: SGD4.6m), and PATMI (1Q19: SGD5.7m) in the next two quarters on higher revenue.
Still, 2Q19 would be important for us to determine how the earnings would pan out for the rest of FY19.
The decrease in 1Q19 revenue was due to a slower business flow in the US and Australia, as well as an absence of the large greenfield revenue. The communications business in Australia recorded a drop from SGD12.1m to SGD7.9m, while the large greenfield project revenue recorded in 1Q18 was SGD7.4m.
♦ Order intake of SGD87.5m, +26.9% YoY. New orders received for the quarter were SGD87.5m, compared to SGD69m in 1Q18. The increase came from the oil & gas sector, which contributed SGD65.9m worth of orders, up from SGD49.5m in 1Q18.
This brings the backlog to SGD182.2m in 1Q19 (1Q18: SGD148.6m).
Infrastructure segment order backlog stood at 126.5m as at 31 Mar 2019, comprising orders including contracts awarded by the Singapore Government.
♦ DPS at SGD0.0275. With strong net cash position of SGD34.8m, and the confidence of generating positive operating cash flow this financial year, management intends to maintain dividend at SGD0.0275/share.
At the current price, this counter offers an attractive dividend yield of 5.5%.
|♦ Maintain BUY and DCF-backed TP of SGD0.61, implying 13.7x FY19F P/E. It is currently trading at 11.2x FY19F P/E, with an attractive dividend yield of 5.5%.
Key downside risks include oil price volatility, economic slowdown, forex risks, declining order intake, lower margins, and execution risks.
Full report here.
(note: What is the infrastructure business of CSE? It encompasses the supply of solutions and services to the Singapore Government, the provision of energy-related solutions and services to the mining and infrastructure sector in Australia and a radio solution and services in Australia. At the beginning of 2015, as part of its business diversification plan, CSE started to build a radio communications business in Australia. That business contributed S$47 million revenue in FY2018, which is a significant progress from the S$5 million revenue in FY2015. This was achieved organically and inorganically through 5 acquisitions of companies in Australia. CSE's infrastructure business grew to S$110 million in revenue in FY2018 compared to S$53.9 million in FY2015.)