Alfie Yeo of RHB Bank Singapore (RHB) has maintained his &ldquo buy&rdquo call on CSE Global at a raised target price of 86 cents from 63 cents previously on the group&rsquo s 1HFY2025 results which met expectations and its strong orderbook of $573 million as at end June.

 

In the 1HFY2025 ended June, CSE Global reported earnings of $16.3 million, up 8.5% y-o-y, while revenue inched up 2.8% y-o-y to $440.9 million.

 

Yeo writes in his Sept 4 report: &ldquo We expect 2HFY2025 to be significantly stronger, as project execution momentum kicks in. We are also positive on CSE&rsquo s recent acquisitions and strategy to target projects with better returns.&rdquo

 

Revenue growth was led by the group&rsquo s communications segment, offset by a slight decline in the electrification and automation segments. The communication segment&rsquo s growth was supported by contributions from newly acquired subsidiaries, while the decline in the electrification segment was affected by what Yeo recognises as a &ldquo less-favourable&rdquo US dollar.

 

&ldquo Otherwise, revenue for the electrification segment would have grown by 0.5% y-o-y,&rdquo he adds.

 

With this, CSE Global&rsquo s earnings before interest, taxes, depreciation and amortisation (ebitda) margin remained stable at 9%, while an interim dividend of 1.14 cents was declared, amounting to a 50% payout ratio. Yeo notes that this is in line with CSE Global&rsquo s practice of paying out 50% of earnings as dividends.

 

Given that results in the period were in line with his forecasts, Yeo anticipates the 2HFY2025&rsquo s revenue and earnings to be &ldquo sequentially stronger&rdquo as more work is recognised from its current orderbook. He expects the group&rsquo s to be driven by acquisitions and growing its orderbook organically with higher-return projects.

 

&ldquo We expect CSE to continue acquiring companies &ndash especially in the communications business &ndash in the US. It is acquiring the companies and customers to grow its network and customer base, as winning new customers is more challenging in the communications business,&rdquo writes Yeo.

 

The group acquired Chicago Communications in the 1HFY2025, which the analyst notes has increased its network to four US states. &ldquo It will also continue expanding its customer base to include data centres,&rdquo he adds.

 

Yap&rsquo s re-rating from 18 to 20 times forward price-to-earnings ratio (P/E) to around 20 to 22 times is also driven by optimism in the market&rsquo s positive fund flows. He writes: &ldquo In view of the market rerating and our positive outlook, we now peg the stock to 17 times blended FY2025-2026F P/E from 13 times FY2025 P/E &ndash in line with peers&rsquo reratings.&rdquo

 

Key drivers noted by him include the expansion of CSE Global&rsquo s communications business via acquisitions and more infrastructure development driving demand for the electrification business segment, while key risks include project cost overruns and unexpected cost increases, which can dampen profitability and margin.