CSE Global (S$0.585, unchanged) has disposed its 66% shareholding
in Power Diesel (PD) to IMR Power Pte Ltd (IMR) for S$15.47mln. CSE
Global’s single largest shareholder, Founder and ex-Chairman Mr Tan Mok
Koon (owns 13.02% of CSE Global) and Vivek Mohan Dixit have also sold
their 32% and 2% respective shareholdings in PD to IMR.
PD is a private limited company incorporated in Singapore on 22 Nov’04
and is in the business of inspection, maintenance, repair, overhaul
of diesel and marine engines and associated mechanical equipment
onboard vessels and offshore installations in the marine and offshore
industry. Key customers of PD operate in the energy and mining business
CSE Global bought the 66% stake in PD on Nov’12 for S$6.27mln and had
said then that the acquisition of PD was in line with the company’s “long
term” business plan to expand by buying firms with “specialized skills and
technologies complementary with the company. However, management
had now changed its mind and said that the rationale for the disposal is to
enable the company to focus on its process controls and communication and security businesses. Management disclosed that the company has achieved an internal rate of return (IRR) of close to 40% on its investment
in PD over the past 2.5 years.
The book value of PD as at Mar’15 is $8.76mln and the sale consideration after deducting all transactions costs and fees is about $10.96mln. While the excess of net proceeds over book value as at Mar’15 is about
$2.2mln, management added that the net gain on disposal at completion date would be lower as the group continues to account for the profits for the period up to completion date.
For illustrative purposes, assuming the disposal of PD had been completed
by Dec’14, CSE Global’s profit would have increased from $35.36mln to
S$38.29mln while its earnings per share would have increased from
6.85 cents to 7.42 cents per share. Management intends to use the net
proceeds for general working capital purposes.
We estimate that CSE Global’s financial position, which is already robust,
will be strengthened further with cash holdings increasing from $67mln
to $78mln against total debts of $44mln, giving a net cash position of
$34mln. This represents 11.3% of its current market cap of $302mln.
We believe the sale of PD is an opportunistic move by management given
that the key customer segments that they serve, namely the energy,
mining and offshore and marine sectors are seeing sharp cut backs in
spending amidst the rout in energy prices and slow-down in Chinese
demand. A 40% IRR over just 2.5 years is also a good return. Finally, given
management’s 40% dividend payout ratio guidance (including divestment
profits), a slightly higher dividend beckons this year.
This coupled with the 40% yoy increase in new orders and 22% increase
in outstanding orders as at Mar’15
and its reasonable valuations of 8-9x
PE and 5% yield gives us reason to maintain our BUY recommendation. (Read Report)
Source : Lim & Tan Research
Labels: CSE Global, Multi-Industry