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 |
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