Brokers' take: UOBKH upgrades CSE Global to 'buy' as oil prices rise

UOB Kay Hian (UOBKH) has upgraded CSE Global to "buy" with a higher target price of S$0.68 compared to S$0.53 previously, as it believes the technology solutions provider's oil and gas segment could be "turning a corner with the rise in oil prices".

In a report issued on Wednesday, analyst John Cheong noted a steady overall rise in oil prices despite volatility, with West Texas Intermediate crude booking a sequential to-date recovery of 38 per cent above the average of H2 2020 levels.

He expects this trend to be supported by Opec (Organization of the Petroleum Exporting Countries) supply curbs as well as a potential oil demand recovery in the later half of 2021 as Covid-19 vaccines are rolled out globally.

"We believe CSE Global is well positioned to leverage opportunities in the recovering oil sector, making it a safe proxy for the rise in oil prices," opined Mr Cheong.

Although the group's oil and gas segment reported a 41 per cent decline in FY2020 partly due to a high base in the previous financial year, the analyst highlights that the order intake for its oil and gas segment rose 30 per cent quarter on quarter in Q4 FY2020. This signals that the segment could be turning a corner, in his view.

He also remains positive on the group's infrastructure and mining segments, whose order books for FY2020 grew year on year despite the impact from Covid-19.

"Earnings momentum from these segments should be sustained with greater orders and a growing order book as CSE builds on its dominant position as a nationwide player in the two-way radio communication industry in Australia," said the analyst.

"Given that it was over two years ago coupled with the rise in infrastructure spending by the Singapore government, there is scope for a sizeable infrastructure project win in the near term," he added.

After adjusting order intake and margin assumptions upwards, UOBKH has raised its FY2021 to FY2023 earnings forecasts to S23.1 million, S$26.6 million and S$27.1 million respectively.

The research house is expecting CSE Global to maintain its full-year dividend at 2.75 Singapore cents per share for FY2021. This translates into an above-average dividend yield of 5.1 per cent versus the FTSE Straits Times Index's 3.6 per cent.

"We believe this (dividend yield) is sustainable given the group's strong operating cash flow and low net gearing," said Mr Cheong.

As at 11.10am, shares of CSE Global were trading 1.5 Singapore cents or 2.8 per cent higher at 55.5 cents.


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