While not particularly inspiring, 4Q met expectations as CSE continues to make steady strides. Undemanding valuations and dividend yields in excess of 5% continue to lend support to our call.
At 24% of our FY12 (full-year at 99%), 4Q was in line with our expectations and consensus. We cut our FY13-14 EPS by 7-9% on lower revenue and margin assumptions. We also introduce FY15 numbers. Our target price, pegged at 8x CY14 P/E (0.5 s.d. below its five-year mean), drops accordingly. We maintain Outperform with catalysts from stronger orders, quarters and accretive M&As.
Results in line; strong cashflow generation
4Q core earnings of S$11.7m increased by 23% yoy on higher revenue (from shale gas projects in the US and a telecoms project in the Middle East) and better cost control. Gross margins climbed up to 5.4%pts qoq to 36.6% (4Q11: 33.2%). Further, CSE Transtel in the Middle East has returned to profit.
This is despite an additional provision of S$1.5m for one of the two significant cost-overrun projects in 2011. These projects are expected to be completed by 1H13. CSE also generated strong operating cashflow of S$35.6m for FY12 (FY11: S$6.9m outflow), bringing net gearing to 0.2x.
Lastly, the group declared a final DPS of 2.75 Scts, bringing total DPS to 4.25 Scts (about 40% earnings payout).
Better late than never
Boosted by the telecoms jobs for a North-Western Australian LNG project, CSE bagged strong orders of S$160m for 4Q, bringing total intake to S$499m for FY12. The order book stands at S$385m and we are modelling S$550m orders for FY13.
Asia Pacific to drive 2013 performance
Underpinned by the Australian jobs, Asia Pacific is expected to take on the baton from the US and drive turnover for 2013. However, margins from these contracts are expected to be lower, keeping blended gross margin in the low 30% range (we expect 33.5%). Asia could surprise with a rush of thermal engineering jobs. (Read Report)
Source : CIMB Research