MAYBANK Securities has initiated coverage on technology group CSE Global : 544 +2.25% with &ldquo buy&rdquo and a target price of S$0.62.

 

The research house said the group is now at an &ldquo inflection point towards a multi-year upcycle&rdquo post the restructuring of its business division in the US, along with recent key acquisitions in the radio communications space.

 

On Monday (Jul 24), it projected CSE&rsquo s profitability to surge 250 per cent year on year in FY2023 on the back of the global oil and gas (O& G) upcycle, as well as robust demand from data centres and infrastructure projects in Australia and Singapore.

 

Maybank analyst Jarick Seet said he expects the group to post strong revenue of S$850 million in FY2025 from S$558 million in FY2022, translating to a three-year compound annual growth rate of 15 per cent.

 

In his view, revenue from the energy segment will continue its upward trajectory in H2 2023 and the years ahead due to strong global O& G demand.

 

Revenue contribution from the data centre segment is forecast to rise to 30 per cent in the next three to five years, from below 10 per cent currently, as CSE obtains more data centre projects on higher demand.

 

&ldquo We believe that CSE is in a sweet spot to win contracts from multiple sectors, and we remain confident that in the coming months, it should be able to secure some contracts for public infrastructure like water treatment facilities as well as more data centre-related solutions,&rdquo said Seet.

 

Based on his projections, the group&rsquo s current order book of S$480 million is expected to surge to some S$900 million by end-FY2023 upon winning near-term contracts.

 

CSE&rsquo s predicted dividend yield of 6.2 per cent, or S$0.0275, is also &ldquo attractive and sustainable&rdquo , he said.

 

The stock is undervalued, in Seet&rsquo s view, as it is currently trading at an &ldquo undemanding&rdquo valuation of 13.7 times the brokerage&rsquo s estimates for FY2023 earnings &ndash compared to its O& G peers&rsquo average multiple of 22.3 times.

 

&ldquo We think (CSE&rsquo s) current share price represents an attractive entry level given its robust growth potential from its energy, infrastructure and data centre businesses,&rdquo added the analyst.

Maybank initiation report 

 

 

CGS-CIMB has raised its target price for global technology group CSE Global : 544 +2.3% to S$0.45 from S$0.37, but maintains its &ldquo hold&rdquo call on the stock as current valuations remain &ldquo fair&rdquo .

 

The higher target price comes after the research team increased its revenue and core earnings per share (EPS) estimates. It said in a report on Thursday (Jul 20) that it expects faster order book executions from easing supply-chain pressures.

 

It predicts a core EPS increase of 9 per cent to 21 per cent for FY2023 to FY2025, with an increase in revenue forecasts for the same period by 11 per cent to 13 per cent, supported mainly by the energy and infrastructure segments.

 

At the new target price, CSE Global trades at 12 times CGS-CIMB&rsquo s price-to-earnings estimates for the 2024 calendar year, up from 10.8 times previously. The estimates are based on a historical average from FY2012 to FY2019.

 

Analysts Kenneth Tan and Lim Siew Khee also forecast a yield of 6.7 per cent for FY2023, which they find attractive.

 

They believe that Q2 2023 could be an &ldquo inflection point&rdquo for CSE Global, after seven straight quarters of supply-chain issues. They expect easing global supply-chain pressures will enable the group, helmed by chief executive Lim Boon Kheng, to speed up order book executions, leading to a clearer earnings recovery path.

 

The research team expects a core net profit of S$7 million to S$8 million, which is a 54 per cent to 76 per cent increase year on year, for H1 FY2023.

 

It also forecasts H1 revenue to go up by 25 per cent to 30 per cent on the year, supported by a sizeable infrastructure order book of S$265 million at the end of the first quarter.