CGS International May 16, 2025 CSE Global: Expecting Stronger 2H25F with a 50% Payout Ratio Overview of CSE Global’s Performance and Future Outlook Management indicates contract momentum and project recognition could be weighted towards 2H25F. [[1]] 1Q25 order wins declined 11% year-over-year to S\$155m due to customer delays caused by trade tariff uncertainties. [[1]] Positive outlook driven by potential strong order intake from government projects, oil and gas, data centers, and infrastructure sectors. [[1]] Dividend policy is now fixed at 50% of net profit, implying a 6.2% yield based on our 2.8Scts DPS estimate. [[1]] Reiterate Add rating with a lowered TP of S\$0.68, still based on 12x CY26F P/E. [[1]] 1Q25 Financial Results: Automation Projects Driving Topline CSE reported 1Q25 revenue of S\$205m (-6% quarter-over-quarter, +4% year-over-year), accounting for 22% of our FY25F forecast. [[1]] Results are in line with expectations, considering 1Q is seasonally weaker. [[1]] Topline growth was propelled by automation (+20% year-over-year) and communication (+7% year-over-year) performance, driven by increased revenue contribution from RFC Wireless and control system projects in the US. [[1]] Electrification revenue declined (-4.1% year-over-year) due to project recognition timing from Australia and New Zealand, completed in April 2025. [[1]] Communications Segment Expected to Drive Order Wins in 2Q25F 1Q25 order wins of S\$155m (-34% quarter-over-quarter, -11% year-over-year) fell below expectations, forming 18% of our FY25F forecast due to weaker electrification orders (-53% year-over-year). [[1]] Award delays were attributed to trade tariff uncertainties, leading to higher cost implications. [[1]] CSE intentionally reduced its focus on municipal water and renewable energy contracts, opting out of some bids. [[1]] Data center-related order momentum remains strong, highlighted by a recent US\$15m order from a major data center hyperscaler. [[1]] We have adjusted our order intake forecast to S\$800m (from S\$850m) for FY25F. [[1]] A significant multi-year public sector contract in Singapore is a key potential catalyst. [[1]] CSE is considering increasing building capacity for future electrification projects in the US. [[1]] Maintaining Stability Amidst Uncertainty We have trimmed our FY25-27F core EPS forecasts by 2-3% to account for a slower pace of order wins affecting the topline, as clients may adopt a more cautious approach. [[1]] Management remains confident in stronger 2H25F order momentum. [[1]] We maintain a constructive outlook on CSE’s long-term fundamentals, supported by a healthy order book and diversified revenue streams. [[1]] The decision to increase the dividend payout ratio to a minimum of 50% reflects confidence in the company’s earnings resilience and stable cash flow. [[1]] Downside risks include cost overruns and a significant slowdown in order wins. [[1]] Investment Recommendation Rating: Add (no change) [[1]] Current Price: S\$0.445 [[1]] Target Price: S\$0.68 [[1]] Previous Target: S\$0.70 [[1]] Up/Downside: 52.8% [[1]] Key Changes in This Note FY25-27F core EPS reduced by 2-3% to reflect a shift in project mix, slower pace of order wins, and lower margins. [[1]] Price Performance 1M Absolute: 9.9% [[1]] 3M Absolute: -3.3% [[1]] 12M Absolute: 9.9% [[1]] 1M Relative: -2.4% [[1]] 3M Relative: -6.6% [[1]] 12M Relative: -24.0% [[1]] Major Shareholders Temasek Holdings: 23.0% [[1]] FMR LLC: 4.4% [[1]] Lim Boon Kheng: 3.2% [[1]] Financial Summary (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Revenue (S\$m) 725 861 918 962 1,010 Operating EBITDA (S\$m) 63.62 82.19 87.75 94.51 99.72 Net Profit (S\$m) 22.53 26.35 37.87 41.55 44.31 Core EPS (S\$) 0.037 0.054 0.055 0.059 0.062 Core EPS Growth 156% 49% 2% 7% 4% FD Core P/E (x) 12.15 8.17 8.04 7.49 7.18 DPS (S\$) 0.028 0.024 0.028 0.030 0.031 Dividend Yield 6.18% 5.39% 6.18% 6.63% 6.97% EV/EBITDA (x) 5.49 4.53 4.18 3.72 3.35 P/FCFE (x) 6.89 20.78 9.05 6.53 6.17 Net Gearing 35.2% 28.2% 22.6% 13.6% 5.0% P/BV (x) 1.27 1.17 1.11 1.05 1.00 ROE 10.5% 15.6% 14.3% 14.6% 14.4% % Change In Core EPS Estimates (2.21%) (1.84%) (2.69%) EPS/Consensus EPS (x) 1.04 1.06 1.00 Updated Investment Thesis for CSE Global CSE is well-positioned to capitalize on electrification trends and data center growth over the next 2-3 years. [[2]] Our target price remains based on 12x CY26F P/E, aligning with the 10-year historical average. [[2]] Potential re-rating catalysts include a ramp-up in the data center business and margin improvements from a shift in project mix. [[2]] Quarterly Revenue Trends and Segment Analysis 1Q25 revenue growth was primarily driven by the automation segment. [[2]] Order Wins Analysis 1Q25 order wins decreased by 11% year-over-year, mainly due to a decline in electrification order wins (-52% year-over-year). [[2]] Earnings Revision Discussion Earnings forecasts have been revised to reflect changes in revenue and profitability expectations. [[3]] Peer Comparison Analysis Company Ticker (lcl curr) Bloomberg Recom. Price (lcl curr) Target Price (lcl curr) Market Cap (US\$ m) P/E CY25F P/E CY26F P/BV CY25F P/BV CY26F Recurring ROE CY25F EV/EBITDA CY25F EV/EBITDA CY26F Dividend Yield CY25F CSE Global CSE SP Add 0.45 0.68 242 8.0 7.5 1.11 1.05 13.9% 4.2 3.6 6.2% ABB Ltd ABBN SW NR 48 NA 99,707 22.0 19.8 6.26 5.36 28.4% 14.9 13.8 1.8% Cisco Systems Inc CSCO US NR 64 NA 255,048 16.8 15.5 5.30 4.89 32.2% 12.6 12.0 2.6% Eaton Corp PLC ETN US NR 290 NA 114,981 24.1 21.5 5.88 5.41 24.1% 19.0 17.2 1.4% Fujitsu Ltd 6702 JP NR 2,879 NA 41,341 15.9 17.7 2.92 2.68 16.2% 10.0 11.0 1.0% Hitachi Ltd 6501 JP NR 3,750 NA 116,780 22.0 18.3 2.78 2.55 12.8% 13.5 10.7 1.0% Honeywell International Inc HON US NR 212 NA 138,361 20.3 18.5 7.57 6.95 36.0% 15.1 14.1 2.2% International Business Machine IBM US NR 253 NA 234,079 23.5 Previous Post Singapore Airlines (SIA SP): Hold Rating, Target Price S$6.88 – FY25 Earnings Analysis & FY26 Outlook Next Post Marco Polo Marine (MPM): 1HFY9/25 Results, Target Price & Analysis (May 2025) Related Posts Market Updates China’s Biopharma Giants Go Global: HUTCHMED and BeiGene Lead the Charge in Oncology Innovation minichart January 17, 2025 Deep Dive Analysis: Leading Chinese Biopharma Companies Navigating Global Markets Deep Dive Analysis: Leading Chinese Biopharma Companies Navigating Global Markets Broker: UOB Kay Hian Date: 17 January 2025 Overview of the Healthcare Sector in... 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