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
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