Maybank keeps &lsquo buy&rsquo on CSE Global, raises target price by 21%

With Trump pushing companies to set up US factories and build more data centres, Mainboard-listed CSE Global will likely be a key beneficiary of these megatrends, says Maybank Securities analyst Jarick See.

CSE, a systems integrator providing electrification, communications and automation solutions, is focused on expanding its US capacity with a much larger facility being constructed, adds Seet in a June 27 note.

&ldquo We believe CSE is gaining good traction with one of the largest data centre players in the US and is in the midst of qualifying for another one [to] two major customers,&rdquo he writes. CSE is also &ldquo well-placed&rdquo to be one of the &ldquo key beneficiaries&rdquo of the Monetary Authority of Singapore&rsquo s (MAS) $5 billion programme to lift the valuation and liquidity of small- and mid-caps here, Seet adds.

Hence, Seet is staying &ldquo buy&rdquo on CSE and raising his 12-month target price by nearly 213% to 70 cents from 58 cents previously.

 

His target price implies a price-to-earnings (P/E) multiple of 14 times for a net profit estimate of $35 million for FY2025 ending Dec 31, up from 11.5 times, to reflect a more optimistic earnings outlook and re-rating potential.

The company&rsquo s &ldquo strategic move&rdquo to focus on clients in the data centre and utilities sectors and reserve capacity in 1QFY2025 led to a 11.3% y-o-y dip in orders to $155.3 million, says Seet, That said, margins are expected to remain &ldquo resilient&rdquo as management has ensured back-to-back pricing orders with suppliers to avoid any tariff shocks down the road, he adds.

Seet expects CSE&rsquo s order wins to pick up in 2HFY2025, &ldquo especially with data centre-related projects in the US&rdquo . &ldquo We are also expecting larger-sized orders to come from Singapore government-related projects.&rdquo

 

In addition, Seet believes CSE will &ldquo likely be one of the key beneficiaries&rdquo of the MAS&rsquo s $5 billion scheme, and its valuation &ldquo will likely increase&rdquo . &ldquo This should be supported by the data centre space in the US, especially if it can win large-sized orders in 2HFY2025.&rdquo

At 55 cents per share, CSE trades at 11 times P/E, a &ldquo significant discount&rdquo to peers despite a forecast 33.6% core net profit growth and 6% dividend yield, says Seet. Its energy, public infrastructure and data-centre segments are all projected to grow strongly in the next few years.

Seet&rsquo s revised target price of 70 cents is supported by several factors, including a growing pipeline of large, high-margin projects in the US the steady recovery of public infrastructure contracts in Singapore a robust balance sheet with net cash position forecast by FY2026 and a 50% dividend payout guidance.

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With sector multiples expanding and CSE&rsquo s risk-reward skewed attractively, Seet sees room for valuation catch-up.

&ldquo Over time, we expect maintenance revenue to build as it completes more projects. We also expect gearing to continue to decrease as its financial performance and operating cast flow improves while some is used to lower its debt over time,&rdquo Seet says.

He adds that dividends are likely to be maintained at 2.75 cents per share, which has been its pay-out for many years.

Several key risks include execution delays on US capacity expansion and project fulfilment order lumpiness leading to quarterly earnings volatility foreign exchange (FX) exposure, particularly US dollar/Singapore dollar fluctuations given international revenue mix and macro-driven slowdowns in industrial and government infrastructure spending.

As at 11.30am, shares in CSE Global are trading 0.5 cents higher, or 0.88% up, at 57 cents.