CSE Global - Look out for Australian LNG project win

- Long-term investor increased stake
- 5.3% dividend yield attractive
- Potential catalyst from Australia

Long term investor increases stake

CSE Global’s shares fell by as much as 14% (from end Nov 11) to $0.67 (a 30-month low) in Dec 11, but subsequently rallied to S$0.75 by the end of 2011. Since the start of the year, its share price has also rallied by another 17% to S$0.88. The Dec sell-off was likely due to France-based institutional investor Amundi Group selling down its stake to below 5% (from 5.2%). Almost immediately after, long-term value investor Chartered Asset Management increased its stake to 13.5% from 12.8%. We spoke to CSE Global’s management and understood that there are no changes to its fundamentals. With a greater proportion of its shares held by long-term investors, we believe there is lower downside risk to its share price.

5.3% dividend yield attractive

For a growth stock like CSE Global, we feel that a 5.3% dividend yield is attractive. Our projected dividends are based on the following assumptions: (i) FY12F revenue of S$551m (backed by an order-book of $487m as of Sep 11), (ii) net margins of about 11%, and (iii) a payout ratio of 40%. With the group’s consistent track record in execution and healthy industry dynamics, we see little downside risk to our assumptions.

Potential catalyst from Australia

We think that a potential catalyst could come from the Australia, where LNG projects appear to be finally gaining momentum. CSE Global has been strengthening its position in the country over the past few years and it has a good chance of winning a major LNG contract. Separately, we note that long-term value investor Chartered Asset Management has increased its stake to 13.5% from 12.8% in Dec 11. With a greater proportion of its shares held by long-term investors, we believe there is lower downside risk to its share price. We also find the current 5.4% dividend yield attractive. Maintain BUY with unchanged fair value estimate of S$1.06. (Read full report)

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Source : OCBC Research