CSE Global - Fully valued

We turn lukewarm on CSE on valuation grounds. At its current share price, we think that there is little difference whether investors take profit for capital gain (since the value accretion from the spin-off has been priced in) or continue to hold the stock for the special dividend of S$0.28/share.

Owing to recent share price outperformance and a lack of other near-term catalysts, we downgrade CSE to Neutral from Outperform. Our FY13-15 EPS and SOP-based target price (implied 13.4x CY15 P/E) remain unchanged. We will revisit the stock if its continuing operations achieve better-than-expected profit growth.

What Happened
CSE’s share price has risen by 20% and outperformed the FSSTI by 22% since it announced its intention to divest 100% of its UK business for listing on the London Stock Exchange. At CSE’s current share price, we believe that the valuation accretion from the proposed spin-off has been priced in. As such, we turn cautious on the stock.

What We Think
Excluding the net proceeds from CSE’s market cap, we estimate that its continuing operations are valued at 7.3x CY15 P/E, which is broadly in line with its past two-year (2011-12) trading range of 8x. Our implied 7.3x CY15 P/E is premised on CSE achieving a 2-year EPS CAGR of 13% in 2013-15 compared with 8% in 2007-2010. Note that 2007-10 represented a period of buoyant growth for the company. 

That said, we believe that our EPS growth target is achievable but any upside to it will be a stretch, based on CSE’s historical performance.


Technical Analysis
Daily Chart
What You Should Do
We do not encourage investors to accumulate the stock

At its current share price, we see little difference whether investors take profit for capital gain (since the value accretion from the spin-off has been priced in) or continue to hold the stock for the special dividend of S$0.28/share

We recommend that investors sell their CSE stock and buy into our top Singaporean small-mid cap picks, Ezion and Mermaid Maritime, instead. (Read Report)

Source : CIMB Research

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