1. What are CSE Global&rsquo s main business segments and how do they contribute to the Group&rsquo s revenue? 

&bull CSE Global is a systems integrator and engineering company providing process controls, communication and security solutions for its customers.

&bull We have geographical presence in 12 countries across the Americas, Asia Pacific, Europe, Middle East and Africa regions serving customers in the following segments:

&bull   Oil & Gas  (&ldquo O& G&rdquo ): &bull   Offshore &ndash shallow sea, continental shelf & deep sea &bull Onshore &ndash shale, pipeline & chemical/petrol chemical &bull   Infrastructure: Transportation, power utilities and water/waste water utilities &bull   Mineral & Mining  (&ldquo M& M&rdquo ): Commodities & minerals (e.g. Coal, gold, iron, copper, nickel & molybdenum)

2. How different is the Group today than it was 5 years ago?

&bull   CSE Global has undergone significant transformations in recent years. Five years ago, our revenue stream was lumpy and inconsistent as we were dependent on large, capital intensive oil and gas greenfield projects. Today, about 95% of CSE Global&rsquo stotal revenues are flow revenues, comprising of small greenfield, system enhancements and upgrades, and maintenance contracts, which are recurring in nature.

&bull The Group is also more diversified now to combat the headwinds in the O& G segment. We will continue to capitalise on opportunities in the Infrastructure and Mining & Mineral sectors.

&bull Order wins rose 52.1% y-on-y to S$578.8m in FY2019 &ndash the highest in 5 years. This was driven by new orders from major greenfield projects, supported by a strong growth in flow orders and supplemented in part, by the recent earnings accretive acquisitions made during the year.


FY19 results conference call (L-R): CFO Eddie Foo | Non-executive Chairman Lim Ming Seong | MD Lim Boon Kheng.  Photo by Ngo Yit Sung

3. Could you elaborate on the CSE Global&rsquo s financial performance in recent years?

&bull In FY2019, the Group&rsquo s revenue grew 21.0% y-o-y to S$451.8m while net profit grew by 19.6% y-o-y to S$24.1 million from S$20.1 million in FY2018. Geographically, the Americas region saw strong revenue growth in FY2019 (17.1% y-on-y to S$279.4m), which are be partially attributed to the inclusion of newly acquired subsidiaries, Volta, LLC and Volta Properties.

&bull Our Infrastructure segment generally contributes the highest EBIT margins at approximately 10% to 14% of revenues, while Oil & Gas EBIT margins are around 5% to 7%.

4. What are some of CSE Global&rsquo s growth drivers and strategic priorities going forward?

&bull Going forward, we will continue to leverage on our engineering expertise to grow our business organically and build on the existing foundations in the O& G and Infrastructure segments to explore value accretive and strategic acquisitions.

&bull Oil & Gas Segment &ndash We expect further opportunities in the coming years when the replacement cycle comes around with older oil fields and platforms maturing. In the meantime, the Group will continue to grow service capacity and expand product offerings for our clients through organic acquisitions.

&bull Infrastructure Segment &ndash We will continue to expand our footprint in the Australia & New Zealand region through strategic acquisitions and replicate our success to bigger markets. In Singapore, CSE Global has good track record and expertise in providing solutions for public infrastructure (e.g. ERP system) &ndash CSE Global was awarded a large security contract in late 2018 from the Singapore government. We believe that as Singapore pursues smart nation initiatives, further opportunities in the automation and security sector will be created. 

5. What are some of the key challenges and how does CSE Global mitigate or manage these?
 

Resilient

&bull About 95% of our revenues are generated from flow orders, while the other 5% are from large greenfield projects. Thus, we do not heavily rely on capex spending on large greenfield projects to support revenues. The flow business is resilient and less susceptible to short term volatilities in the O& G market.&rdquo -- CSE GLOBAL

&bull Over the last few years, CSE Global have successfully grown our onshore O& G business to reduce the dependency on offshore O& G segment, which now accounts for 50% of its revenues in the Americas region. As a group, CSE Global has also mitigated the risk of concentration by diversifying our revenue streams into the Infrastructure sector.

&bull CSE Global prides itself as a people business and is dependent on its workforce to execute projects. Hence, the Group devotes substantial amount of resources to ensure the continuity of its core engineering team through incentive and retention plans, and skills development to provide the best of class services to our customers.

6. Can you elaborate on your acquisition strategy? What are some selection criteria when acquiring/assessing potential businesses and assets?

&bull The strategic fit of the target company to CSE Global&rsquo s business or strategy is the most important criteria. Our long term strategy generally follows two prongs, with the acquisition either expanding our geographical presence or our range of services in the value chain to increase product offerings for our clients.

&bull Other key considerations also include fair valuation and strategic alignment of the management team of the target business. The acquisitions would need to be earnings accretive and generate good cashflow.

7. Can you share more about your recent acquisitions?
The Group made several strategic acquisitions in 2019 to ensure a diversified and sustainable income stream.

Oil & Gas Segment
&bull We made an accretive acquisition of Volta in August 2019, to complement our O& G business. Volta is a US firm that develops, designs, manufactures, and services custom-engineered electrical equipment centres (EEC). The acquisition combines CSE Global&rsquo s current engineering and automation capabilities with Volta&rsquo s expertise in designing and fabricating large scale EECs. This will allow the Group to provide full-stream offerings for our customers and enhance our position in the midstream O& G market.

&bull In January 2019, the Group also acquired Blackstar Services, successfully expanding our capabilities to the design and development of water treatment and disposal technology for our O& G segment.

Infrastructure Segment
&bull In July 2019, the Group acquired Chatterbox, which provides radio communication solutions in the UK. With the acquisition, the Group hopes to replicate our success in Australia and expand geographically beyond Asia Pacific. The UK provides ample opportunities for the Group with a communications industry that is much larger than Australia. &bull Further to Chatterbox, the Group also acquired RCS Telecommunications in March 2019 allowing us to expand our radio business to the Queensland region of Australia.

8. What is CSE Global&rsquo s competitive edge versus other peers?

&bull We view ourselves as a people business and our key strength lies in our strong engineering expertise and extensive domain knowledge.

&bull We maintain close and long-standing relationships with our customers, and strive to consistently deliver quality and cost-effective solutions even on tight schedules. CSE Global&rsquo s technical capabilities and ability to remain nimble allows us to compete among the likes of industry giants.
 

9. CSE Global has geographical presence in various locations globally. Who are the major customers that you serve? &bull The Group&rsquo s clientele is well-diversified across industries and geographical regions with no client accounts exceeding 10% of the Group&rsquo s total revenue. &bull In the Oil & Gas sector, large independent players such as BP, Shell, Chevron and ExxonMobil have been our loyal customers since the beginning. &bull On the Infrastructure end, the Singapore government remains one of our key clients, providing stable and high recurring revenue stream. In Australia, some of the Group&rsquo s major customers include government agencies, utilities, ports, railways and airports.

10. What is the Group&rsquo s dividend policy? Does the Group intend to switch to a fixed pay-out policy?

&bull We believe that our stable revenue, high customer retention rate and strong operating cashflows, will support consistent dividend pay-outs.

&bull Before FY2014, the Group has been paying dividends at 40% of net profit. Since then, dividend per share has been maintained at 2.75 Singapore cents per annum (c. 5.0% yield based on share price of S$0.55 as of 31 Dec 2019).

&bull Going forward, the Group may potentially revert to paying dividends based on a percentage of net profit, conditional on the Group achieving a certain pre-determined profit level.
 

Uma Devi  Published on Tue, Sep 03, 2019 / 11:21 AM GMT+8

SINGAPORE (Sept 3): CSE Global on Monday announced it was acquiring a 100% stake in industrial power systems manufacturer Volta LLC via wholly-owned subsidiary CSE Americas.

  The consideration for the acquisition deal was US$25.1 million ($34.8 million), payable in cash and subject to adjustments for working capital amount. CSE Global will finance the deal using a combination of internal resources and bank borrowings.

  Volta is a US company that develops, designs, manufactures, and services custom-engineered electrical equipment centres (EEC) that distribute, control, and monitor the flow of electrical energy, and provide protection to motors, transformers, and other electrically powered equipment.

  In an SGX filing on Monday, CSE Global says the acquisition is in line with the group&rsquo s long-term plan to expand through acquisition of companies with specialised technologies complementary to its existing businesses and through geographical coverage.

  In addition, by combining CSE Global&rsquo s engineering, automation and instrumentation and electrical service capabilities with Volta&rsquo s capability to design and fabricate large-scale electrical equipment centres, the group says it will have a full-stream offering for the midstream energy and petrochemical industry.

  CSE Global says the acquisition of Volta will add $4.1 million to  FY2019 profit after tax. In FY2018, the group had recorded a profit after tax of $26.6 million. Even assuming FY18&rsquo s estimated net profit of US$3.6 million -- excluding tax on pretax net profit of US$4.9 million -- the deal would have been valued at a 6.9 times FY18 earnings. As at June 30, Volta had a net book value US$10.5 million.

  And while See believes CSE Global&rsquo s FY19F debt could increase to $70 million, she still views the acquisition as net profit accretive.

  &ldquo We are positive on this acquisition as it increases CSE Global&rsquo s depth in the onshore oil and gas market and supplements its growth. CSE Global continues to be our preferred small-cap O& G pick. We raise our target price to 68 cents from 60 cents previously, based on an unchanged 13.5x FY20F P/E,&rdquo says See.