Electrification segment grows 32.4% on higher project revenue achieved from major contracts secured in 2023

 

TECHNOLOGY solutions provider CSE Globa : 544 +3.45%l reported a profit of S$15 million for the first half of FY2024, up 36.4 per cent from the corresponding period in 2023.

 

Revenue for H1 was up 22.8 per cent to S$428.9 million, led by the growth of its electrification business segment.

 

The electrification business segment grew 32.4 per cent year-on-year to S$216.7 million in H1 2024. The group attributed the growth to higher project revenue achieved from major contracts secured in 2023.

 

Meanwhile, its automation segment posted a revenue growth of 25.5 per cent year on year, or S$20 million, mainly due to growth in the Americas and Asia-Pacific markets.

 

Its communications segment posted the smallest growth of 6.1 per cent.

 

Across the various regional markets, the Americas posted the largest increase in revenue of S$273.7 million for H1, up 34 per cent from a year ago. Its other markets &ndash Asia-Pacific, Europe, Middle East and Africa &ndash achieved revenue growth of around 7 per cent each.

 

In line with higher revenue, the group&rsquo s gross profit increased S$22.6 million or 23.6 per cent year on year to S$118.4 million.

 

Its order book for H1 was up by S$692.3 million, or 32.7 per cent, from a year ago. The group said its &ldquo robust&rdquo order book puts the company in a position to achieve a healthy financial performance in 2024.

 

Lim Boon Kheng, the group managing director and chief executive officer, said that the company expects new opportunities to arise from emerging trends such as urbanisation, electrification and decarbonisation.

 

&ldquo To leverage these new opportunities for further growth, we will continue expanding our engineering capabilities and technology solutions, with a focus on the electrification and communications business segments,&rdquo he added.

 

CSE Global&rsquo s board of directors has recommended an interim dividend of 1.25 Singapore cents per share for H1, unchanged from the previous year. The dividend will be paid out on Sep 27.

Maybank Securities analyst Jarick Seet has kept &ldquo buy&rdquo on CSE Global 544 0.00% with a target price of 64 cents, adding that the company remains one of its conviction picks as a rare proxy for electrification, artificial intelligence (AI) and data centres themes.

 

CSE is expected to release its 1HFY2024 ended June results on Aug 6. Maybank believes that the company will perform well in the period, with its strong order momentum win rate to likely continue. 

 

&ldquo We also believe that a substantial shareholder, who had been paring down their stake since 2023 has likely pared all their stake. This would be positive for CSE as the overhang suppressing the share price is likely gone,&rdquo says Seet.

 

He believes that the company would register double-digit growth y-o-y in its 2QFY2024 order wins, following a strong pipeline of infrastructure projects from the US. This will likely boost its already robust order-book, which is also a good indicator of its potential revenue going forward, says Seet.

 

In April, CSE announced that it has secured a $49.2 million contract variation which is for the design, engineering, fabrication, installation and integration of power management systems and solutions for data centres in the US. 

 

Maybank thinks its client is &ldquo one of a handful&rdquo of main cloud providers in the US. CSE is likely to win more data centre contracts from its existing and new customers, Seet says. &ldquo AI technology and data centres require huge amounts of energy to develop and run and will benefit power management system integrators like CSE,&rdquo he adds.

 

Aside from offering investors a unique opportunity to ride the upcycle in attractive growth areas, CSE also offers a sustainable 6.5% dividend yield. 

 

Maybank believes CSE has a clear multi-year growth outlook, expecting further accretive acquisitions &mdash especially in the critical communications segment in the US and Australia &mdash which could accelerate its growth. &ldquo There is also a strong possibility of management share buy-backs and company share buy-backs,&rdquo Seet says.

 

UOB Kay Hian and Maybank Securities have kept their " buy" calls and respective target prices for CSE Global 544 0.00% , following its 1QFY2024 business update where revenue growth was in line.

 

Thanks to higher recognition of contracts from the infrastructure segment, CSE Global reported revenue of $197 million for the three months ended March, up 24% y-o-y.

 

In the quarter, the company won new orders worth $186.2 million, up 17% y-o-y, bringing its total order book to $719.3 million, up 49.8% over 1QFY2023.

 

About 45% of the new orders were secured by the electrification segment while automation-related orders surged 65% yoy to $52 million.

 

" CSE' s healthy order inflow attests to its established track record, which has allowed it to expand its customer base and achieve further order book growth," write UOB Kay Hian analysts John Cheong and Heidi Mo in their May 13 note.

 

They' ve maintained their " buy" call and 56 cents target price, pegged to 15x FY2024 earnings, which is at +1SD above the mean.

 

Given the projected full-year dividend payout of 2.75 cents per share, the target price translates too into a yield of 6.7%.

 

Jarick Seet of Maybank Securities has a more bullish target price of 64 cents. 

 

Besides the attractive dividend yield, CSE has a " clear multi-year growth outlook" and Seet expects the company to execute further accretive acquisitions, especially in the critical communications segment in the US and Australia which could accelerate its growth. 

 

" There is also a strong possibility of management share buy-backs and company share buy-backs," adds Seet.

 

Kenneth Tan of CGS International in his May 10 note maintained his " add" call but trimmed his target price to 57 cents from 62 cents, to reflect an enlarged share base of 9% from a recent placement of new shares.

 

The placement, completed in March, helped raise $24 million which CSE plans to use for acquisitions.

 

Tan, citing the company' s management, says that CSE is still in talks with potential targets, which are in the critical communications sectors within the US and Australia. 

 

" We believe CSE&rsquo s targets will likely be profitable, similar to its past acquisitions," says Tan, adding that the targets' net profit could be in the range of $2 - 4 million each.

 

His new target price of 57 cents is based on 12x FY2025 earnings, which is the average of the valuation multiple achieved between FY2012 and FY2019. 

 

For Tan, re-rating catalysts include strong infrastructure order wins momentum, large greenfield energy project wins, and consistent margin improvements as its infrastructure order book grows. 

 

On the other hand, downside risks include major project cost overruns and a sharp decline in order wins amid a global economic slowdown.

Its order book stands at S$719.3 million as at Mar 31

 

SYSTEMS integrator CSE Global secured S$186.2 million worth of new orders in Q1 ended Mar 31, 16.7 per cent higher than the previous year.

 

The growth was &ldquo driven by stronger demand for electrification and automation solutions in the infrastructure and energy industries&rdquo , CSE said in a bourse filing on Tuesday (Apr 30).

 

Its automation segment saw the greatest growth, with orders rising 65.4 per cent to S$51.8 million. The company had received more orders for waste treatment centre expansion in Asia-Pacific.

 

Meanwhile, CSE&rsquo s electrification business segment saw a 6 per cent rise in new orders to S$82.9 million. Demand for electrification solutions remained robust with a &ldquo strong pipeline&rdquo of projects, said CSE.

 

Orders in the communications segment grew 2.9 per cent to S$51.6 million, with the business remaining stable despite delays in communications projects in Australia and New Zealand.

 

Chief executive Lim Boon Kheng said that the company is encouraged by the strong orders in Q1. Its order book stood at S$719.3 million as at Mar 31.

 

&ldquo We expect order intake momentum in 2024 to remain robust as we expand our engineering capabilities and technology solutions. We plan to leverage the urbanisation, electrification, and decarbonisation mega trends, which will serve as CSE&rsquo s growth drivers going forward,&rdquo Lim said.

 

CSE Global 544 -1.19% has announced securing a contract variation worth US$36.5 million ($49.2 million) in the Americas on April 18.

 

The project is an extension to the contract the company initially secured in 1Q2022 for the data centre market. 

 

The new contract encompasses the design, engineering, fabrication, installation and integration of power management systems and solutions, which are slated for execution from 1Q2024 to 1Q2025. 

 

Group managing director Lim Boon Kheng says: &ldquo The award of this contract exemplifies the confidence and trust of our customers in our solutions and services. The data centre market continues to grow due to increased demand for cloud services. We are also investing to double our manufacturing and integration capacity to support this contract.&rdquo

 

While the contract is not expected to have any material impact on the consolidated net tangible assets per share or earnings per share of the company for the FY2024 ending Dec 31, the project is expected to contribute positively to CSE&rsquo s financial performance for the FY2024 and FY2025.

CSE Global 544 1.15% has raised a total gross proceeds of $24 million from its share placement of 60 million new ordinary shares, attracting strong demand from institutional and accredited investors.

 

The issue price per share for the placement shares was 40 cents, representing a discount of approximately 6.6% to the volume weighted average price of 42.81 cents per share on March 13, the last full market day preceding the date the placement agreement for the share placement was signed.

 

Including the placement shares, CSE Global&rsquo s share base has been enlarged by 9.71% to approximately 678.11 million shares. 

 

Based on the unaudited financial statements of the group for the FY2023 ended Dec 31, 2023, its pro forma net tangible assets per share as at end-2023 will increase from 19.96 cents to 21.62 cents, and its earnings per share will be diluted from 3.66 cents to 3.34 Singapore cents. 

 

CEO Lim Boon Kheng says: &ldquo We are heartened by the interest in the share placement and thankful to have the strong support from investors, which illustrates confidence in CSE Global&rsquo s growth potential. We see opportunities arising on the back of megatrends such as urbanisation, electrification and decarbonisation.&rdquo

 

&ldquo The proceeds raised will strengthen our balance sheet, enabling us to leverage these trends and pursue further inorganic growth through strategic acquisitions or investments primarily in our core markets, including the US, Australia and New Zealand,&rdquo he adds.

 

The listing of the placement shares on the SGX-ST is expected to commence at 9.00 am on March 26.

 

The placement shares are eligible for the final one-tier tax-exempt cash dividend of 1.5 cents per share recommended by the CSE directors, subject to approval by shareholders at the group&rsquo s annual general meeting on April 29.

 

Maybank Securities acted as sole placement agent for the share placement.