TECHNOLOGY solutions provider CSE Global : 544 +1.08% will likely see lower margins amid supply-chain disruptions and inflation in the first half of 2022, said CGS-CIMB on Wednesday (May 18).

 

The research team lowered its target price on the counter to S$0.54 from S$0.57, after cutting its earnings-per-share estimates for CSE by 10.9 per cent in FY2022, 5.3 per cent in FY2023 and 2.7 per cent in FY2024.

 

It expects, however, that CSE&rsquo s earnings visibility will still be supported by its strong order book, and maintained its &ldquo add&rdquo call on the counter.

 

The counter closed at S$0.47 on Thursday, up half a cent or 1.1 per cent.

 

CSE on Tuesday posted revenue of S$117.6 million for its first quarter ended Mar 31, up 5.8 per cent from S$111.2 million in the year-ago period.

 

This was mainly due to a growth in revenue from its infrastructure segment, which rose 56.6 per cent on year to S$47.3 million in the quarter, driven by higher contributions across Australia, Singapore, the UK and the US.

 

While the results were in line with expectations, CGS-CIMB said the infrastructure project wins were stronger than expected.

 

The research team expects the record-high quarterly order wins should result in a firmer income visibility, and raised its revenue forecasts by 2 to 4 per cent for FY2022 to FY2024.

 

However, it cut earnings estimates as it expects supply-chain disruptions will continue to weigh on project executions and be a key concern in the first half of 2022.

 

REVENUE for mainboard-listed CSE Global : 544 0% rose 5.8 per cent to S$117.6 million in the first quarter ended Mar 31, 2022, from S$111.2 million in the year-ago period.

 

This came mainly from growth in the mainboard-listed company&rsquo s infrastructure projects in the Asia-Pacific, particularly from utility and government customers in Australia, it said in a business update on Tuesday (May 17).

 

Infrastructure grew some 56.6 per cent year on year to S$47.3 million in Q1, driven by higher revenue contributions across Australia, Singapore, the United Kingdom and the United States, due to increased investments in public and critical infrastructure.

 

Revenue from the mining and minerals sector rose 3.8 per cent year on year to S$12.3 million, as progress began to be made on projects with the easing of Covid-19 curbs. On the other hand, revenue from the energy sector fell 16 per cent year on year to S$58.1 million, following lower large-project revenues in the Americas region.

 

Order intake surged 118.8 per cent to S$232.3 million, largely from the company securing a major contract to provide engineering solutions for the data-centre market and higher field-services orders for the wastewater market in the Americas.

 

The group said it expects operational challenges brought on by supply-chain constraints will continue to weigh on its financial performance in the first half of 2022, though the situation is expected to improve in the second half.

 

It said: &ldquo While there was a lack of large greenfield projects in the energy sector, we continue to see stable financial performance in the infrastructure and mining and minerals sectors, supported by a steady stream of projects arising from requirements in digitalisation and enhancements in physical and cyber security.&rdquo

 

Despite the ongoing operational challenges, the group said it will continue to execute its book order, which stood at S$344 million at the end of Q1. It will also focus on improving its core business and expand into new geographical markets for all segments of its business, with a view to securing additional order opportunities in the coming months.

 

CSE Global : 544 0% secured S$232.3 million worth of new orders in the fourth quarter ended Dec 31 2022, up 118.8 per cent from a year ago.

 

This takes its order book to S$344 million as at Q1 2022.

 

About S$105.5 million of the new orders were landed by the group&rsquo s energy sector, which was higher than the S$56.6 million secured by the sector in Q1 2021, on the back of a major contract relating to the maintenance and refurbishment of building management control systems for an offshore facility and higher orders for integrated systems.

 

New orders for its infrastructure sector surged by 187.8 per cent year-on-year to S$110.1 million, thanks to a major contract secured to provide engineering solutions for the data-centre market and higher field services orders for the wastewater market in the Americas region. Stronger orders of radio communication equipment and solutions led by utility and renewables customers in Australia was also a contributing factor.

 

The rest of the new orders came from its mining & minerals sector, which was worth S$16.7 million.

 

Lim Boon Kheng, group managing director of CSE Global, said that the strong orders received in Q1 2022, building on the momentum from Q4 2021, is a testament to customers&rsquo confidence and trust in the company&rsquo s solutions and services.

 

&ldquo Due to ongoing supply chain disruptions, the execution of these recent contract wins will be backloaded in later part of 2022 and in 2023. Hence, we expect the revenues associated with these projects to be recognised from the second half of 2022,&rdquo noted Lim.

 

Looking ahead, CSE Global remains optimistic in navigating the challenges induced by the pandemic, as it expands its engineering capabilities and technology solutions to pursue new market opportunities, he added.

 

The orders are not expected to have any material impact on the consolidated net tangible assets per share or earnings per share of the group for the financial year ended Dec 31, 2022.

DBS Group Research and CGS-CIMB have cut their target prices on CSE Global but maintained their " buy" and " add" calls respectively.

 

CGS-CIMB lowered its target price on the mainboard-listed technology solutions provider to S$0.57 from S$0.61, representing a potential upside of 18.8 per cent from the counter' s last trading price of S$0.48 as at 1.58 pm on Wednesday (Mar 2).

 

Shares of CSE Global were down 1 per cent or S$0.005 at the time.

 

CGS-CIMB said CSE Global is trading at 10 times the research team' s estimates for FY2023 earnings, which is 0.7 standard deviation below the group' s 10-year historical mean.

 

Meanwhile, DBS trimmed its target price to S$0.59 from S$0.60, representing a potential upside of about 22.9 per cent. The new target price is 13.8 times the research team' s earnings estimates for FY2022, and more than 1 standard deviation of CSE Global' s 4-year average price-to-earnings ratio.

 

This comes as the research team cuts its FY2022-13 earnings estimates by 14 per cent to 18 per cent. The cut in earnings estimates was to account for lower margins due to the still challenging environment amid supply chain disruptions.

 

While near-term margins could be under pressure, CGS-CIMB said it still like CSE Global for its " decent 5.7 per cent" dividend yield and diversification into higher-margin infrastructure projects. Although CSE Global' s outlook remains challenging, wins from its infrastructure segment could surprise, CGS-CIMB said.

 

" We think the recent infrastructure contract win (first major data-centre project won) could pave the way for more order wins in this field," said CGS-CIMB analysts Kenneth Tan and Lim Siew Khee.

 

DBS is also positive on CSE Global' s recovery as new order wins from all segments continued to gain ground in the past 4 quarters. The research team also noted the potential for large contract wins for the group' s energy segment in FY2022.

 

" We are also optimistic on CSE Global' s small acquisitions to enhance and strengthen its operations and recurring revenue stream as well as its pivot towards renewable energy projects (solar and wind)," said DBS analyst Ling Lee Keng.