Hence, Seet is staying “buy” on CSE and raising his 12-month target price by nearly 213% to 70 cents from 58 cents previously.
His target price implies a price-to-earnings (P/E) multiple of 14 times for a net profit estimate of $35 million for FY2025 ending Dec 31, up from 11.5 times, to reflect a more optimistic earnings outlook and re-rating potential.
The company’s “strategic move” to focus on clients in the data centre and utilities sectors and reserve capacity in 1QFY2025 led to a 11.3% y-o-y dip in orders to $155.3 million, says Seet, That said, margins are expected to remain “resilient” as management has ensured back-to-back pricing orders with suppliers to avoid any tariff shocks down the road, he adds.
Seet expects CSE’s order wins to pick up in 2HFY2025, “especially with data centre-related projects in the US”. “We are also expecting larger-sized orders to come from Singapore government-related projects.”
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In addition, Seet believes CSE will “likely be one of the key beneficiaries” of the MAS’s $5 billion scheme, and its valuation “will likely increase”. “This should be supported by the data centre space in the US, especially if it can win large-sized orders in 2HFY2025.”
At 55 cents per share, CSE trades at 11 times P/E, a “significant discount” to peers despite a forecast 33.6% core net profit growth and 6% dividend yield, says Seet. Its energy, public infrastructure and data-centre segments are all projected to grow strongly in the next few years.
Seet’s revised target price of 70 cents is supported by several factors, including a growing pipeline of large, high-margin projects in the US; the steady recovery of public infrastructure contracts in Singapore; a robust balance sheet with net cash position forecast by FY2026; and a 50% dividend payout guidance.
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With sector multiples expanding and CSE’s risk-reward skewed attractively, Seet sees room for valuation catch-up.
“Over time, we expect maintenance revenue to build as it completes more projects. We also expect gearing to continue to decrease as its financial performance and operating cast flow improves while some is used to lower its debt over time,” Seet says.
He adds that dividends are likely to be maintained at 2.75 cents per share, which has been its pay-out for many years.
Several key risks include execution delays on US capacity expansion and project fulfilment; order lumpiness leading to quarterly earnings volatility; foreign exchange (FX) exposure, particularly US dollar/Singapore dollar fluctuations given international revenue mix; and macro-driven slowdowns in industrial and government infrastructure spending.
As at 11.30am, shares in CSE Global are trading 0.5 cents higher, or 0.88% up, at 57 cents.
