CSE Global

[Musicwhiz]

Chartered Asset Management increased stake for CSE.. from August 2011..

based on normal earnings (FY2010), CSE is valued at 7x P/E at last done 72c

no doubt CSE is a good business with excellent management.. but at 7x P/E is still expensive for me.. could it be the good brand of CSE will never allow a drop in P/E to below 6?

should I stretch my hurdle rate of 6x P/E? >.<

That's historical PER, right? For a project-based company like CSE Global, what would be considered "normal earnings"? Maybe a 5-year average to see what the average growth rate in earnings is?

Just a suggestion.

[Nick]

Chartered Asset Management increased its stake from 12.81% to 13.49%. Share price closed at 72.0 cents.

PER can be a useful tool but as MW mentioned, it is a project based company so order-book should be taken into account as well. At the moment, their orderbook is at record level so there will be some revenue growth in FY 12. The question is at what margin and whether the project over-run situation has been mitigated (any more repeats ?) etc.

(Not Vested)

[newyorkcityboy]

stocks are not sold off without reason. is the middle east cost overrun a warning, harbinger of things to come? also not forgetting that it had an issue with its balance sheet in 2008 (although improved now) with too much short term liabilities. so management is not perfect and discount has to be applied appropriately.

caveat emptor.

[dzwm87]

has done up a research on CSE Global.. please feel free to comment on things which I might have left out

TheValueThought

[dzwm87]

Anticipates CSE's new Australia LNG Project Win

CSE Global: Look out for Australia LNG
project win.
● Long-term investor increased
stake.
● 5.3% dividend yield attractive
● Look out for Australia LNG project
win
Long-term investor increased stake.
CSE Global’s shares fell by as much as 14%
(from end Nov 11) to $0.67 (a 30-month
low) in Dec 11, but subsequently rallied to
S$0.75 by the end of 2011. Since the start of
the year, its share price has also rallied by
another 17% to S$0.88. The Dec sell-off was
likely due to France-based institutional
investor Amundi Group selling down its stake
to below 5% (from 5.2%). Almost
immediately after, long-term value investor
Chartered Asset Management increased its
stake to 13.5% from 12.8%. We spoke to
CSE Global’s management and understood
that there are no changes to its
fundamentals. With a greater proportion of
its shares held by long-term investors, we
believe there is lower downside risk to its
share price.
5.3% dividend yield attractive.
For a growth stock like CSE Global, we feel
that a 5.3% dividend yield is attractive. Our
projected dividends are based on the
following assumptions: (i) FY12F revenue of
S$551m (backed by an order-book of $487m
as of Sep 11), (ii) net margins of about 11%,
and (iii) a payout ratio of 40%. With the
group’s consistent track record in execution
and healthy industry dynamics, we see little
downside risk to our assumptions.
Watch out for the Australia LNG project
win.
We think that a potential catalyst could come
from Australia. According to media reports,
Alcatel-Lucent (a competitor to CSE Global)
has been awarded a contract by Bechtel to
build a communication network for the
Wheatstone LNG project. With this
development, the tender processes of other
LNG projects should be finally gaining
momentum. CSE Global has been
strengthening its position in Australia over
the past few years and it has a good chance
of winning a major LNG project work.
Maintain BUY with unchanged fair value
estimate of S$1.06. (Chia Jiunyang)

-------------------------------
Have no clue where they get the news of a new LNG project win. Maybe it was from their talk with CSE management.

[egghead]

They mention Wheatstone project was won by CSE competitor. I don't think CSE has won any new Australia LNG project yet.

[egghead]

CSE guided that 4Q-11 will be about 75% of 3Q-11 instead of earlier guidance of 4Q-11 surpassing 3Q-11 earnings. The reason given is "...CSE has been adversely affected by the fact that several of our customers were late in providing approval for our engineering designs which has led to a lower than planned lower revenue and profit contribution from those contracts."

Market promptly sells down the stock this morning with the price dropping $0.11 to $0.79. Would you:

1. Believe this is a one-off and take the opportunity to bottom fish?
2. Wait for more clarity at the results briefing?
3. Sell your holding in case of further deterioration?

[Musicwhiz]

Market promptly sells down the stock this morning with the price dropping $0.11 to $0.79. Would you:

1. Believe this is a one-off and take the opportunity to bottom fish?
2. Wait for more clarity at the results briefing?
3. Sell your holding in case of further deterioration?

None of the above. I'd do more digging up and research on the company first.

[egghead]

I actually model the 3 choices base on Buy/Hold/Sell so your choice would have the same effect as #2.

Just curious - do you build your shopping list (screening), do research (FA) and wait for an entry point (good margin of safety); or other sequence?

[dzwm87]

CSE guided that 4Q-11 will be about 75% of 3Q-11 instead of earlier guidance of 4Q-11 surpassing 3Q-11 earnings. The reason given is "...CSE has been adversely affected by the fact that several of our customers were late in providing approval for our engineering designs which has led to a lower than planned lower revenue and profit contribution from those contracts."

Market promptly sells down the stock this morning with the price dropping $0.11 to $0.79. Would you:

1. Believe this is a one-off and take the opportunity to bottom fish?
2. Wait for more clarity at the results briefing?
3. Sell your holding in case of further deterioration?

I will wait for more clarity before deciding whether to bottom fish. The key thing is to find out the main reason behind the "late in providing approval". My suspect seem to think that there should not be too much deteoriation to CSE's fundamentals. Global outlook is weak yet oil prices are soaring - this can be a valid reason for hesitation behind customers decision to approve CSE's engineering designs.

Also, notice that they were "late in providing approval". Which means that there is a possibility revenue being merely shifted towards a later quarter of recognition.

I did a forecast based on their 75% estimation of 4Q earnings and I have to admit the result is quite a disappointment. One of my bigger concern is whether has management becoming more complacent given that Tan Mok Koon is playing a lesser important role. If I recall correctly, ever since the 2Q project overrun, management has constantly projected an optimistic forecast, only to dissapoint when the result has arrived. And the MD Alan Russell Stubbs even aim to hit $1bn in rveenue by 2013. Quite an aggressive forecast I will say.

Market promptly sells down the stock this morning with the price dropping $0.11 to $0.79. Would you:

1. Believe this is a one-off and take the opportunity to bottom fish?
2. Wait for more clarity at the results briefing?
3. Sell your holding in case of further deterioration?

None of the above. I'd do more digging up and research on the company first.

Musicwhiz, I did a research on CSE. You can check it out on my website.

Overall, I am still long CSE and I believe the bsuiness fundamental is still intact. IMO, I highly suspect it's a delay shift in revenue. More important to take note is how much more contracts have they won in 4Q? If you noticed, they have shifted quite a handful of employees to America - in anticipation of higher growth in that region?

As for valuation, based on my forecast of the 75% 3Q guidance, at around 80c should give the historical average P/E of 15x. I will average down if opportunities arise.

*vested*