KGI said it restarted CSE Global at Buy with a fair value of S$0.57 as industry fundamentals are improving and on the “attractive” around 6 percent dividend yield.
CSE Global’s valuations are attractive on undemanding earnings multiples of 15, 12 and 10 times 2018, 2019 and 2020 core earnings per share (EPS), KGI said in a note this week, adding the company has a solid balance sheet, asset light model and stable recurring free cash flows.
CSE has guided for a full-year 2.75 Singapore cent dividend, a level it has consistently paid over the past four years, it said, adding it expected the company could sustain the amount ahead.
It also pointed to a positive company outlook, with potential 22-26 percent EPS growth over the next three years on better industry prospects and synergies with its new major shareholder, Malaysia-listed Serba Dinamik, a mechanical maintenance servcie provider, which acquired a 24.84 percent CSE Global stake in April.
“As both companies are mainly involved in oil and gas projects, the acquisition could result in synergies between them,” KGI said. “We believe it is highly likely that Serba Dinamik could utilise CSE’s system integration products and services while CSE could open doors in markets such as the U.S. and Australia. Serba Dinamik currently derives half of its revenues from the Middle East, a market that CSE has cut back its presence due to problems with customer payments.”
In addition, KGI noted that in the wake of the oil and mining downturn from 2015, CSE Global has diversified into Australia’s infrastructure sector, mainly in the supply and servicing of two-way radio-communication systems.
The brokerage estimated Australia contributed around 30 percent of group revenue in fiscal 2017, with more room for growth as tendering activity remains strong in key sectors.
The stock ended Wednesday at S$0.475.