It hopes to tap new shareholder Heliconia sees downturn as opportunity to entrench itself further in customers' supply chains.

 

RECENT acquisitions have shored up CSE Global' s financial performance, making the tech-solutions provider a bright spot in the Covid-19 pandemic-hit oil and gas sector. With a continued appetite for mergers and acquisitions (M& As), it is now eyeing a " consolidator" role in the downturn.

 

CSE is looking at buying opportunities in the oil and gas and the critical infrastructure segments in the United States, as well as the infrastructure sector in Singapore and Australia, group managing director Lim Boon Kheng told The Business Times.

 

The engineering-centric firm specialises in control systems and telecommunication network and security solutions. It serves the oil and gas industry in the Americas, with clients including oil majors BP and Shell, as well as the infrastructure and mining segments in Asia-Pacific.

 

" Geographical expansion is something that we want to continue the other (area) is downward and upward integration of supply, to offer our customers a more complete, varied solution package. That' s something that we want to look at in this downtime, particularly in this tough period for the oil and gas industry," Mr Lim said.

 

" There will be people who are planning to retire or face some financial issues. We will definitely be able to be the consolidator at this point of time."

 

Exploring collaboration

 

CSE is also exploring how it can collaborate with its new major shareholder, Heliconia Capital Management, on both M& A strategy and pursuing new growth areas.

 

In early July, Temasek-owned Heliconia acquired a 25 per cent stake in CSE via a married deal with Malaysian engineering services provider Serba Dinamik International. The latter had bought its stake back in 2018.

 

" Heliconia is not active in the day-to-day management, but they do have a big balance sheet. The question is whether we can work together more in terms of acquisitions and growth areas that is something that I think they are open to&hellip We are still discussing what are the new growth opportunities going forward," Mr Lim said.

 

Sectors of interest include the Internet-of-Things (IoT) connectivity, automation, communication and security services. CSE may also explore cross-selling opportunities via Heliconia' s network.

 

When asked about the circumstances behind Serba Dinamik' s exit, Mr Lim said that he was not privy to the transaction but that both firms still work together.

 

This year is shaping up to be a challenging one for CSE, given the dual impact of the Covid-19 pandemic and the fall in oil prices. CSE' s share price declined from over 54 Singapore cents in early-March to 32 cents about midway through the month. It closed last week at 49.5 cents.

 

The second quarter of the year was especially challenging, said CSE' s chief financial officer Eddie Foo.

 

" There were a lot of restrictions, not just in travel, but also with our customers' sites, in the US, Australia and Singapore. That affected our ability to service our customers and hence also bill our customers for the maintenance work," he said.

 

Even so, CSE delivered a strong set of numbers for H1. It recorded a 47.7 per cent rise in earnings to S$15.1 million. This was partly because the firm had " the benefit of the incremental contributions" from recent acquisitions, Mr Foo said. Revenue rose 39.1 per cent to S$255.6 million, led by a 51.7 per cent rise in income from the Americas to S$172.2 million.

 

It also maintained its interim dividend from the previous year at 1.25 cents per share.

 

" Some companies have cut, but we think that we should continue to reward our shareholders for staying with us," Mr Foo said of the decision to maintain the payout.

 

Mr Foo said that CSE emphasises on building financial resilience by picking M& A targets that have a strong client retention and engineering talent.

 

In March last year, a CSE unit acquired an Australian firm specialising in two-way radio systems. The purchase of RCS Telecommunications for A$11.64 million was funded by internal resources.

 

About six months later, another CSE unit bought US industrial power systems manufacturer Volta for US$25.1 million. It also acquired Volta Properties, which houses the operations of Volta, for US$17 million. These purchases were financed by a mix of internal resources and bank borrowings.

 

To be sure, pursuing M& A could add to CSE' s debt. The company was in a net debt position of S$21.1 million as at the end of June. But even as it pursues buying opportunities, Mr Foo said it would be cautious not to take on too much debt.

 

" The current market presents a very compelling opportunity for people to grow using debt acquisitions, because the funding costs are low. But of course, at the end of the day, even if (we) use debt, the business must generate cash flow to repay the debt," he said.

 

" That' s the key thing that we look at if the company has enough cash flow generation ability to service and bring down the debt, I think that' s fine."

 

When it comes to investor perception, CSE has never had the advantage of being " sexy" like the oil and gas drillers, Mr Lim said. Its share price is down about 10 per cent year to date, trading at 10.8 times earnings.

 

But in these unprecedented times, he believes that its tech expertise will help it shine as a defensive play.

 

Said Mr Lim: " I always tell people we are a workhorse business, even though the stock market loves excitement."