In-Depth Analysis of CSE Global: Beneficiary of Trump 2.0 – Maybank Research
In-Depth Analysis of CSE Global: Beneficiary of Trump 2.0
Broker Name: Maybank Research Pte Ltd
Date of Report: November 8, 2024
Introduction
CSE Global (CSE SP) is set to benefit significantly from the potential resurgence of the US oil and gas (O&G) sector under Trump’s administration. This detailed analysis provides a comprehensive overview of CSE Global’s current market position, potential growth avenues, financial metrics, and environmental, social, and governance (ESG) performance.
All Stars Set to Align for CSE Global
With Trump advocating for lower energy prices and increased production in the US, CSE Global stands to gain immensely. Despite a recent pivot towards electrification projects, a revival in the O&G sector could lead to all three of CSE’s segments firing simultaneously, potentially boosting its order book and profitability.
As of 9M24, orders from the energy sector declined by 3.7% year-on-year (YoY) to SGD237 million. However, this scenario could drastically change under the Trump administration, which is likely to boost US oil production by loosening regulations and revisiting exploration on federal lands.
Order Wins and Financial Performance
In 3Q24, CSE won new orders worth SGD186.7 million, down 37.7% YoY, mainly due to delays in potential order wins worth SGD60-80 million, expected to be secured in 4Q24. Consequently, order wins are anticipated to pick up significantly in 4Q24 but may still be lower YoY due to one-off orders secured in 2H23. The medium-term outlook remains positive, with further contract wins in the electrification space and potential share buybacks to demonstrate management’s confidence in CSE.
Share Price and Market Performance
As of the date of the report, CSE Global’s share price stood at SGD0.44, with a 12-month price target of SGD0.60, indicating a potential upside of 44%. The company’s 52-week high/low was SGD0.49/0.39, with a market capitalization of SGD267.5 million, and issued shares totaling 615 million.
Financial Metrics and Growth Ratios
| Metric |
FY22A |
FY23A |
FY24E |
FY25E |
FY26E |
| Revenue (SGD m) |
558 |
725 |
853 |
968 |
1,102 |
| EBITDA (SGD m) |
(6) |
15 |
26 |
39 |
47 |
| Core Net Profit (SGD m) |
5 |
23 |
21 |
31 |
39 |
| Core EPS (cts) |
0.9 |
3.7 |
3.1 |
4.6 |
5.7 |
| Core EPS Growth (%) |
(68.3) |
293.4 |
(15.5) |
50.0 |
23.4 |
| Net DPS (cts) |
2.8 |
2.8 |
2.8 |
2.8 |
2.8 |
| Core P/E (x) |
36.5 |
11.7 |
14.1 |
9.4 |
7.6 |
| P/BV (x) |
0.8 |
1.2 |
1.1 |
1.0 |
0.9 |
| Net Dividend Yield (%) |
8.1 |
6.4 |
6.3 |
6.3 |
6.3 |
| ROAA (%) |
1.1 |
4.1 |
3.3 |
4.6 |
5.3 |
| EV/EBITDA (x) |
nm |
22.8 |
12.5 |
8.2 |
6.2 |
| Net Gearing (%) (incl perps) |
34.0 |
35.2 |
13.6 |
7.4 |
net cash |
Value Proposition
CSE Global, a global systems integrator, is poised for a multi-year upcycle driven by trends such as electrification and O&G. Its energy, public infrastructure, and data-centre segments are projected to grow strongly in the coming years. The company offers an attractive prospective dividend yield of 5.9%+ and trades at a significant discount compared to peers. As of June 30, 2023, CSE had a strong order book of SGD521.8 million.
Historical Share Price Trends and Financial Metrics
- FY18 net profit surged 50.8% YoY to SGD20.1 million.
- COVID-19 caused a significant sell-off across global equities.
- Share price rebounded due to strong orders secured and good results.
- Cost overruns on two projects caused profit to drop by 68% YoY to SGD4.8 million.
- Conducted a rights issue at SGD0.33/share with management willing to subscribe to the excess rights.
ESG Performance and Initiatives
CSE Global has room for growth in terms of sustainability strategies. The group is committed to protecting the environment, using TCFD roadmaps to reduce carbon emissions, and negotiating Sustainability Linked Loans. The company has been pushing for digitalization, reducing its paper consumption index consistently over the years.
Environmental Issues
- Plans to measure Scope 3 emissions and reduce greenhouse gas carbon emissions.
- Negotiating with banks for possible Sustainability Linked Loans.
- FY22 targets for reducing carbon emissions have not been met, but paper consumption has decreased consistently.
- Planning to disclose TCFD roadmap to drive climate action.
Governance Metrics and Issues
- The board comprises eight directors, including the Executive Chairman, CEO, and seven non-executive directors, of which all are independent.
- 25% of the board are females, demonstrating decent diversity.
- Management has implemented a whistle-blowing policy for safe and confidential communication of alleged incidents.
- Conducts a Risk Assessment and Control Self-Assessment exercise to identify, assess, and document material risks and corresponding internal controls.
- Plans to conduct climate-related training for all Board Members and Management Team.
Social Issues
- CSE recognizes its employees as its greatest asset and promotes diversity and an inclusive environment.
- New hire rates stand at 30%, and turnover rate is 27% as of end-2022.
- Adopts flexible work arrangements but aims to improve workplace gender diversity and training hours for employees.
- In 2022, donated SGD5,000 to Yellow Ribbon Singapore and granted 30 bursaries to employees for further studies.
Quantitative Parameters
| Parameter |
Unit |
2021 |
2022 |
2023 |
STE SP 2023E |
| Scope 1 emissions |
tCO2e |
2,234 |
2,720 |
2,298 |
37,000 |
| Scope 2 emissions |
tCO2e |
2,415 |
2,447 |
2,363 |
74,000 |
| Total emissions |
tCO2e |
4,649 |
5,167 |
4,661 |
111,000 |
| GHG intensity (Scope 1 and 2) |
tCO2e/million hour |
9.900 |
9.300 |
6.400 |
11.000 |
| Electricity Consumption |
kWh |
5,597.12 |
6,062.77 |
5,821.25 |
350,833.33 |
| Electricity Consumption Index |
kWh/SGD million |
11.94 |
10.87 |
8.03 |
60,833.33 |
| Paper Consumption index |
kg/SGD million |
11 |
13 |
9 |
NA |
| % of women in workforce |
% |
14.0% |
15.0% |
16.6% |
22.0% |
| % of women in senior management roles |
% |
14% |
16% |
19% |
14% |
| Economic performance |
SGD(m) |
443 |
510 |
638 |
9552 |
| Number of fatalities |
0 |
0 |
0 |
0 |
| Rate of high-consequence work-related injuries |
% |
0 |
0 |
0 |
NA |
| MD/CEO salary as % of reported net profit |
% |
5.50% |
18.12% |
9.35% |
0.89% |
| Board salary as % of reported net profit |
% |
25.35% |
80.28% |
26.47% |
0.40% |
| Independent directors on the Board |
% |
90% |
88% |
67% |
60% |
| Female directors on the Board |
% |
22% |
25% |
22% |
20% |
Qualitative Parameters
- Is there an ESG policy in place and is there a standalone ESG committee or is it part of the risk committee? Yes. Through the Corporate Sustainability Work Group, they collectively execute the CSR plan, identifying, and managing material ESG factors as well as engaging sustainability stakeholders.
- Is the senior management salary linked to fulfilling ESG targets? No.
- Does the company follow the task force of climate related disclosures framework for ESG reporting? Yes.
- Does the company have a mechanism to capture Scope 3 emissions – which parameters are captured? Yes, they capture emissions from transportation of employees between their homes and their worksites via personal automobile, public automobiles, buses, trains and other modes of transport, such as walking and the use of personal mobility devices.
- What are the 2-3 key carbon mitigation/water/waste management strategies adopted by the company? Investing in green technology such as energy efficient electronic equipment, LED lighting and solar power.
- Does carbon offset form part of the net zero/carbon neutrality target of the company? Yes.
ESG Targets and Achievements
| Particulars |
Target |
Achieved |
| Reduce greenhouse gas CO2 index by 10% by 2030 |
10% |
0 |
| Zero confirmed incidents of corruption |
0 |
0 |
| Zero cases of non-compliance with all applicable laws and regulations |
0 |
0 |
| Reduce paper by 1% annually |
1% |
1% |
Financial Year End Metrics
| Metric |
FY22A |
FY23A |
FY24E |
FY25E |
FY26E |
| P/E (reported) (x) |
47.0 |
10.8 |
14.1 |
9.4 |
7.6 |
| Core P/E (x) |
36.5 |
11.7 |
14.1 |
