Brokers’ take: DBS downgrades CSE Global to ‘hold’ on supply chain woes

DBS Group Research on Tuesday (Aug 16) downgraded its call on CSE Global from "buy" to "hold", with a target price of S$0.45, down from S$0.59. This comes as supply chain disruptions are still expected to weigh on the systems integrator's margins.

Analyst Ling Lee Keng trimmed her gross margin estimates for CSE in FY2022 and FY2023 to 27.2 per cent and 27.7 per cent respectively, down from 28.7 per cent and 28.6 per cent previously.

"Supply chain issues have resulted in project delays and higher costs of executing projects, which has led to lower gross margins," she said. CSE's net profit for H1 fell 55 per cent to S$4.5 million amid these challenges.

That said, Ling is still confident of a better H2 for CSE, with recovery in new order wins. The company's infrastructure and mining and mineral segments offer stable growth, Ling added.

"We are expecting its infrastructure segment to continue growing on higher government spending on infrastructure projects, and its mining and mineral segment to remain sturdy amidst higher commodity prices." she said.

Renewables are also a growing opportunity for CSE, given higher demand for wind and solar energy projects, Ling said. In Q2, the company secured a large greenfield order for the installation and integration of solar power systems, she noted.

"Generally, the energy sector is still highly disciplined with their capital expenditure, resulting in fewer large greenfield projects in H1. This is likely to continue into the second half which could dampen revenue contributions from the energy sector," said Ling.

"However, recovery in the flow business and new business opportunities in renewables should help to cushion the lower contributions from large greenfield projects."

CSE closed flat at S$0.47 on Tuesday.

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