KEY POINTS
Oil prices continued to rally Wednesday, and analysts expect prices to continue to rise this summer, possibly spiking to $80 per barrel or higher.

The rise in prices comes as the demand outlook continues to strengthen. At the same time, the world is now dipping into oil inventories built up last year.

OPEC+ agreed to stick to its schedule to raise output, but a wild card for the global energy picture remains U.S. producers.

Photo: Bloomberg Analysts from CGS-CIMB Research and DBS Group Research have kept &ldquo add&rdquo and &ldquo buy&rdquo on CSE Global despite the group&rsquo s lower overall revenue for the 1QFY2021 ended March. See: CSE Global reports 22.3% lower EBITDA of $10 mil in 1Q business update To CGS-CIMB analysts Cezzane See and Kenneth Tan, the lower revenue, which were hurt by winter storms in the US, stood in line with expectations, as the quarter saw fewer contract executions. To them, the executions should &ldquo pick up&rdquo in the coming quarters.

Despite the seasonal weakness, CSE Global&rsquo s order intake of $106 million in the 1QFY2021 remained &ldquo healthy&rdquo , with the bulk of orders coming in from the energy sector at $57 million. CSE Global&rsquo s management also indicated that it remained &ldquo cautiously optimistic&rdquo on its order outlook as it hopes to secure greenfield projects over the rest of the FY2021. On this, See and Tan have kept their target price estimate of 63 cents, still pegged to 12 times FY2022 price-to-earnings (P/E), which is close to the group&rsquo s 2015-2020 historical average. &ldquo Despite uncertainties from Covid-19, we expect a better second-half performance as deferred projects from 1QFY2021 are gradually executed,&rdquo they write in a May 20 report. &ldquo Going forward, the energy segment could see gradual recovery as oil price recovers while the infrastructure segment should continue to be bolstered by orders from CSE&rsquo s key markets (Singapore and Australia),&rdquo they add. DBS analysts Chung Wei Le and Ling Lee Keng are also optimistic on CSE Global&rsquo s recovery. They have, however, trimmed their target price estimate on CSE Global to 63 cents from 64 cents. They have also lowered their earnings estimates for the FY2021 and FY2022 by 11% and 3% respectively due to the weather conditions in the US, which are impacting the group&rsquo s energy segment.

The lower target price is pegged to 11.1 times (+1 standard deviation or s.d. of its four-year average) of its FY2021 earnings. That said, the analysts deem the counter&rsquo s current share price as an &ldquo attractive entry opportunity for a growth stock with a recovery story&rdquo . &ldquo CSE is currently trading at 9.3 times FY2021 P/E, which is - 0.2 SD below its 4-year historical mean,&rdquo they write in a May 21 report. &ldquo [CSE&rsquo s] dividend yield is attractive at 5.2%,&rdquo they add. Looking ahead, Chung and Ling believe that the higher oil prices should translate into higher order wins. &ldquo The West Texas Intermediate (WTI) crude oil is currently trading at US$60-65 ($79.88-$86.54) per barrel, up more than 50% from its average trading range in 2HFY2020. We believe that the higher and stable oil prices will entice oil producers to increase their production, resulting in more new order wins for CSE,&rdquo write the analysts from DBS. Chung and Ling also expect CSE Global&rsquo s Infrastructure and Mining & Mineral segment to continue delivering growth as governments increase their spending on projects, and as commodity projects increase. The latter should spur on more mining projects in Australia, say the analysts. 

 

CSE GLOBAL reported earnings before interest, taxes, depreciation and amortisation (Ebitda) of S$10.0 million for the first fiscal quarter ended March, down 22.3 per cent from S$12.9 million in the corresponding quarter last year.

 

The company attributed the decline to lower gross profits, coupled with an increase in unallocated personnel costs from lower labour utilisation caused by lower business activity.

 

In its interim business update on Wednesday, the company' s revenue for the quarter fell 15.7 per cent to S$111.2 million from S$131.8 million in the year-ago period.

 

Revenue from the Americas fell 26.7 per cent on the back of slower activities in time and material revenues due to the severe winter weather disruptions in the US.

 

This was, however, partially offset by a 4.8 per cent growth in the Asia-Pacific region, as well as a jump in revenue from the Europe, Middle East and Africa (EMEA) region to S$3.5 million from S$1.5 million last year.

 

Segmentally, revenue from CSE Global' s infrastructure segment rose 21.1 per cent year on year to S$30.2 million as the group continued to see increased investments in public and critical infrastructure across Australia, Singapore and the UK. There was also a steady demand for power solutions from infrastructure.

 

Revenue from the mining and minerals segment rose 4.7 per cent year on year to S$11.9 million as rising commodity prices lent support to the segment' s activities in Australia. CSE Global said it expects stable demand and growth from this sector.

 

The energy segment, however, bucked the trend, posting a 27.7 per cent decline in revenue to S$69.1 million in the quarter.

 

Order intake in Q1 fell 16.5 per cent to S$106.2 million from S$127.2 million in the year-ago period. However, this was an uptick from S$98.4 million in Q4 last year despite the first quarter being a traditionally " slow season" .

 

CSE Global generated cash inflow from operations of S$7.1 million in Q1, and lowered its net debt position to S$37.3 million as at end-March from S$39.0 million at end-December 2020 due to better working capital management.

 

Looking ahead, the company noted that the current market environment presents " numerous uncertainties" in terms of the Covid-19 pandemic and the global economic outlook.

 

Lim Boon Kheng, group managing director of CSE Global, said: " Despite the uncertainties in the coming months, the group' s prospects remain unchanged per the last outlook presented in February 2021, and it remains confident to achieve a satisfactory financial performance in 2021.

 

" We will continue to focus on these key markets as well as to expand our engineering capabilities and technology solutions to pursue new market opportunities or diversify into new markets (such as renewables and building automation) brought about by the emerging trends towards urbanisation, electrification and decarbonisation."