CSE Global, known as a generous dividend payout stock, has cut its 2HFY2024 payout. Nonetheless, given the brighter prospects of stronger order wins, analysts have raised their respective target prices for the stock.
On Feb 26 CSE Global reported earnings of $36.8 million for its FY2024, up 63.2% over the preceding year ended Dec 31 2023.
There is a one-off expense of $10 million from an arbitration settlement and if included, earnings increased by 16.9% y-o-y to $26.3 million.
In a bid to rechannel resources to generate new growth, the company trimmed its final dividend to 1.15 cents per share, down from 1.5 cents in the year-earlier period.
Jarick Seet of Maybank Securities, acknowledging the dividend cut, believes that going forward, the company will implement a dividend policy of at least 50% of net profit after tax to balance growth and cash needs due to its expansion plans in the US.
"We expect short-time knee-jerk negative price reaction due to the reduction in dividends, but remain bullish on the longer-term growth potential of CSE and believe dividends will bounce back in FY2025, says Seet.
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The company's orderbook has reached some $672.6 million, with a bigger proportion of so-called large greenfield projects, to be executed in the coming two to three years.
"Larger orders are likely to follow through as it continues to expand in the US, especially with its new facility, which is 2-3x larger," says Seet, who estimates the company to incur capex of around US$50 million to get the expanded facility ready by end of FY2026.
Besides revenue growth of between 10 to 15% y-o-y, Seet believes that CSE Global's net margins will further improve in the current FY2025.
With a corresponding better bottomline, Seet estimates that CSE Global's dividends can potentially be higher than 2.75 cents per share that it used to pay prior to the dividend cut.
Seet has raised his earnings forecast for FY2025 by 32% and FY2026 by 24%, leading to a higher target price of 67 cents from 64 cents, based on based on 11.5x FY2025 earnings.
"With the stars aligning for CSE, we believe the expansion of its US facility signifies the strong confidence management has in its prospects. We expect share buybacks as well as higher net margins y-o-y," he adds.
Kenneth Tan and Lim Siew Khee of CGS International, meanwhile, are reiterating their "add" call but with a higher target price of 70 cents from 62 cents.
John Cheong and Heidi Mo of UOB Kay Hian, similarly, have raised their target price from 59 cents to 61 cents while maintaining their "buy" call.
