R e t a i l M a r k e t M o n i t o r W e d n e s d a y , 0 1 F e b r u a r y 2 0 2 3
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S I N G A P O R E
F R O M T H E R E G I O N A L M O R N I N G N O T E S . . .
CSE Global (CSE SP)
Earnings Accretive Acquisition And Major Contract Wins
CSE just acquired a US radio communication group for US$11m. We view this
positively as the acquisition valuation appears attractive and is highly accretive as it
could lift CSE&rsquo s 2023F earnings by around 20%, assuming Radio One Group&rsquo s 2022
earnings can be sustained. In addition, CSE has won two major contracts worth
US$87m. We raise our 2023F EPS by 12% to factor in the positive developments. We
also raise our target price by 22% to S$0.45 (14x 2023F PE). Upgrade to BUY.
WHAT&rsquo S NEW
&bull Acquisition of Radio One Group. CSE Global (CSE) on 31 Jan 23 announced that it
had successfully acquired a US radio communication group, Radio One Group, for
US$11m. Radio One is based in Florida and provides radio communications solutions,
Federal Communications Commission licensing assistance, servicing and two-way radio
rentals to enterprise and government customers. It also installs and manages wireless
networks and video surveillance camera systems. The acquisition is part of CSE&rsquo s
strategy to expand and grow its communication businesses in the infrastructure industry
markets. We view this positively as the acquisition valuation is attractive at around 4x
2022 PE and is highly accretive as it could lift CSE&rsquo s 2023F earnings by S$3.6m or
around 20%, assuming the 2022 earnings of Radio One Group can be sustained.
&bull Winning of two major contracts worth S$87m. On 30 Jan 23, CSE announced that it
had secured two major contracts worth S$87.3m in the US and Singapore. The first major
contract is for the design, engineering, fabrication, installation and integration of complex
electrical, instrumentation and control systems and equipment for wastewater treatment
plants in the US, which is slated for execution from 2023 to 2027. The second major
contract relates to a multi-year system maintenance contract from the Singapore
Government in the infrastructure sector.
&bull Expect strong order wins for 2022. We expect CSE to achieve a record order win of
more than S$700m for 2022. To recap, CSE&rsquo s 9M22 order intake was up 77.3% yoy to
S$587m. Total orders in 9M22 have exceeded that of 2021, with improvement across all
industry sectors observed. In the energy sector, orders surged 80.5% to S$325m due to
higher field services orders, new contracts for the renewables market and for
maintenance of integrated control systems for production facilities secured in the
Americas region. Order intake for the infrastructure sector also rose by 80.5% yoy to
S$209m in 9M22. This mainly arose from new major contracts for the data centre market
and more wastewater and industrial project orders obtained upon increased infrastructure
spending in the Americas region. Stronger orders of radio communication equipment and
solutions by Australia and UK customers have also been recorded during the year. Mining
and minerals&rsquo order intake has climbed to S$53m (+50.4% yoy) as a robust order pipeline
for radio communication network projects from Australian mining customers has been
established.

Radio One Group is based in Florida and provides radio communications solutions, Federal Communications Commission licensing assistance, servicing and two-way radio rentals to enterprise and government customers. 

MAINBOARD-LISTED CSE Global on Tuesday (Jan 31) said it has acquired Radio One Group, a group of radio communication companies in the United States, for US$11 million.

 

CSE Global had on Monday completed its sale and purchase agreement to purchase the entire issued and outstanding shares of the group, which comprises Radio One and Communications Service Co of Daytona.

 

Radio One Group is based in Florida and provides radio communications solutions, Federal Communications Commission (FCC) licensing assistance, servicing and two-way radio rentals to enterprise and government customers. It also installs and manages wireless networks and video surveillance camera systems.

 

CSE Global noted that it has been engaged in radio and critical communications business in similar markets, and expects the acquisition will be earnings accretive and be a strategic fit to complement its current business.

 

The acquisition is also part of the company&rsquo s strategy to expand and grow its communication businesses in the infrastructure industry markets.

 

For the 12 months ended Dec 31, 2022, Radio One Group recorded net profit before tax of US$3.5 million and earnings before interest, taxes, depreciation, and amortisation of US$3.7 million.

 

After the acquisition, the pro-forma earnings per share of the company is expected to rise to 3.38 Singapore cents from 2.93 Singapore cents for its financial year ended 2021, assuming the acquisition has been affected on Jan 1, 2021.

 

CSE Global intends to fund the acquisition using proceeds from its rights issue and bank borrowings.

CSE Global has announced securing two major contracts worth $87.3 million in the US and Singapore.

 

The technology company&rsquo s first major contract is for the design, engineering, fabrication, installation and integration of complex electrical, instrumentation and control systems and equipment for wastewater treatment plants in the US, which is slated for execution from 2023 to 2027.

 

The other major contract relates to a multi-year system maintenance contract from the Singapore government in the infrastructure sector.

 

Group managing director of CSE Global Lim Boon Kheng says: &ldquo We are very encouraged to have secured these two major contracts, as our customers continue to leverage on our expertise and place their trust in our solutions and services. Infrastructure remains a key focus area where we are diversifying our business and these wins are testament to the strength of our strategy.&rdquo

 

&ldquo These projects are expected to contribute positively to CSE Global&rsquo s financial performance for the financial years 2023 to 2027,&rdquo adds Lim.

 

For the current financial year ended December 2022, these contracts are not expected to have any material impact on the consolidated net tangible assets per share or earnings per share of the company.