Indices have rallied since my last writeup; CSE Global may be interesting (5 May 24)

el15

Dear all,

Per my writeup (click HERE) which I published on 21 Apr (Sunday), I pointed out that based on 19 Apr closing prices, the market is starting to look attractive with various SGX listed stocks presenting favourable risk reward set-ups with a medium-term horizon.

It is noteworthy that both S&P500 and Hang Seng notched their approximate two-month intraday lows on 19 Apr and have since rebounded from there. Hang Seng was the star performer in the past couple of weeks and clocked a 13.9% rally or 2,252 points increase. It is gratifying to see that Capitaland Investment (CLI) which I have highlighted in the same article has jumped $0.26 or 10.6%, inclusive of dividends. See Table 1 for more details.

Source: InvestingNote

Table 2 shows the top 20 stocks listed by total potential return. As usual, readers and clients have to do their own due diligence. This is just a first level screen with caveats. The full list is available to my clients.

Table 2: Top 20 stocks listed by total potential return

Source: Bloomberg as of 2 May 24 (prices rounded to 2 decimal places)

Out of the above stocks, CSE Global looks interesting on the following aspects.

 

CSE Global

CSE Global is a leading systems integrator providing electrification, communications, and automation solutions across various industries globally.

Listed on the Singapore Exchange since 1999, CSE has presence across 16 countries, 58 offices, and close to 2,000 employees across the globe. They have long-standing relationships with a sizeable customer base comprising large government organisations and renowned brands across the Energy, Infrastructure, and Mining & Minerals sectors.

CSE Global (CSE) closed at $0.430 on 3 May.

 

Some noteworthy points are

a) Dividend $0.015 / share to be ex-div on 9 May with 1QFY24 business update on 9 May after market

Besides going ex-div on 9 May, CSE will report its 1QFY24F business update on 9 May after market.

b) Consistent dividends of $0.0275 / share for the past five FYs, yielding 6.4%

At $0.430, its dividend yield is around 6.4%. Based on Table 3 below, CSE has given a consistent dividend per share of $0.0275 / share for the past five financial years. This is commendable notwithstanding that it has done a rights issue in Nov 2022 and a share placement in Mar 2024 resulting in an enlarged share capital. In addition, we also have Covid in 2020 which severely disrupted most business operations.

Table 3: CSE Global consistent dividends of $0.0275 / share for the past five FYs

Source: Shareinvestor

d) Analysts are positive with a total potential return of around 47%!

Based on Figure 1 below, average analyst target price and dividend yield are around $0.610 and 6.4% respectively. If the consensus is right, total potential return is around 47%! Readers can refer to the analyst reports HERE. Lim & Tan also cites CSE to be at an inflexion point (Click HERE to read more)

Figure 1: Average analyst target price $0.610; total potential return 47%!

Source: Bloomberg 3 May 24

e) Uptrend since Jun 2023 with a surge in volume over the past 4 trading days

Based on Chart 1 below, CSE has been on an uptrend since Jun 2023, with a strong pickup in volume over the past 4 trading days. Since Oct 2023, CSE has been trading sideways between $0.395 – 0.445. Although indicators have yet to show a convincing bullish up-move, the pickup in volume over the past four trading days has been encouraging. A sustained breach above $0.445 with volume expansion points to an eventual technical measured target of around $0.495. Near term support and resistance are at $0.410 – 0.425 and $0.445 – 0.450 respectively.

Chart 1: CSE – Uptrend since Jun 2023, with a surge in volume over the past 4 days

Source: InvestingNote 3 May 24

f) Business operations remain strong with 1QFY24 revenue up 23.9% to $197m

CSE reports its order intake for the first 3 months of 2024. It has clinched contracts worth a total of S$186m in 1QFY24 vs 160M in 1QFY23. 1QFY24 revenue also jumped 23.9% to $197m which should bode well for its upcoming 1QFY24 business update slated for release on 9 May after market.

Based on their press release dated 30 Apr, CSE expects order intake momentum in 2024 to remain robust as they expand their engineering capabilities and technology solutions. CSE plans to leverage the urbanisation, electrification, and decarbonisation mega trends, which will serve as CSE’s growth drivers going forward. Most of these trends are secular trends and bode well for CSE.

In addition, on 18 Apr, CSE announced it had won a major contract variation worth US$36.5m (approximately S$49.2m) in the Americas region. This is an extension to the first contract CSE had secured in 1Q22 for the data centre market. The scope is for the design, engineering, fabrication, installation and integration of power management systems and solutions, which is slated for execution from 1Q24 to 4Q25. This also bodes well for their 2Q24 contract wins.

Table 4: 16.7% jump in order intake and 23.9% surge in 1QFY24F revenue

Source: Company

Besides the usual macro risks, below are examples of some risks which may affect CSE.

 

Some possible risks

a) Cost overruns

As CSE is a systems integrator, it needs to manage its projects well such that costs do not overrun. Cost overruns will erode their margins and consequently, their profits.

b) Integration costs from acquisitions

It is common knowledge that CSE has done numerous bite size acquisitions. Acquisitions, if not executed properly, may result in a surge of integration costs etc. Based on a UOBKH Research report dated 1 Apr, CSE has done 30-40 acquisitions with a commendable rate of integration.

c) Forex risks

CSE operates in various countries hence any large swings in foreign exchange rates may affect its profitability.

d) Buying ahead of upcoming results involves risks

This is the usual caveat which I have shared previously. Buying before the results may be risky as it is difficult to project how its share price may react post results. A worse than expected results and importantly guidance may have an adverse impact to its share price. This risk may be somewhat alleviated as CSE already indicated a 23.9% jump in their 1QFY24 revenue. Furthermore, profit numbers are usually not shown in their 1Q, 3Q business updates.

 

Conclusion

In summary, notwithstanding that most markets have rallied since 19 Apr, I personally believe that there may be still be potential trading opportunities.

An example may be CSE. I have highlighted the potential interesting points and the noteworthy risks in CSE. Readers, please do your own due diligence.

I do highlight several companies to my clients on a regular basis. However, due to time constraints, I will not be posting most of them on my blog.

 

Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/

Readers can refer to my LinkedIn HERE to see my activities and which companies I have met on a 1-1 basis.

 

P.S: Among the companies mentioned above, I am vested in CLI and CSE.

 

Disclaimer

Please refer to the disclaimer HERE

65 thoughts on “Indices have rallied since my last writeup; CSE Global may be interesting (5 May 24)”

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