Yeo writes in his Sept 4 report: “We expect 2HFY2025 to be significantly stronger, as project execution momentum kicks in. We are also positive on CSE’s recent acquisitions and strategy to target projects with better returns.”
Revenue growth was led by the group’s communications segment, offset by a slight decline in the electrification and automation segments. The communication segment’s growth was supported by contributions from newly acquired subsidiaries, while the decline in the electrification segment was affected by what Yeo recognises as a “less-favourable” US dollar.
“Otherwise, revenue for the electrification segment would have grown by 0.5% y-o-y,” he adds.
With this, CSE Global’s earnings before interest, taxes, depreciation and amortisation (ebitda) margin remained stable at 9%, while an interim dividend of 1.14 cents was declared, amounting to a 50% payout ratio. Yeo notes that this is in line with CSE Global’s practice of paying out 50% of earnings as dividends.
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Given that results in the period were in line with his forecasts, Yeo anticipates the 2HFY2025’s revenue and earnings to be “sequentially stronger” as more work is recognised from its current orderbook. He expects the group’s to be driven by acquisitions and growing its orderbook organically with higher-return projects.
“We expect CSE to continue acquiring companies – especially in the communications business – in the US. It is acquiring the companies and customers to grow its network and customer base, as winning new customers is more challenging in the communications business,” writes Yeo.
The group acquired Chicago Communications in the 1HFY2025, which the analyst notes has increased its network to four US states. “It will also continue expanding its customer base to include data centres,” he adds.
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Yap’s re-rating from 18 to 20 times forward price-to-earnings ratio (P/E) to around 20 to 22 times is also driven by optimism in the market’s positive fund flows. He writes: “In view of the market rerating and our positive outlook, we now peg the stock to 17 times blended FY2025-2026F P/E from 13 times FY2025 P/E – in line with peers’ reratings.”
Key drivers noted by him include the expansion of CSE Global’s communications business via acquisitions and more infrastructure development driving demand for the electrification business segment, while key risks include project cost overruns and unexpected cost increases, which can dampen profitability and margin.
Prior to the mid-day break, shares in CSE Global were trading 0.5 cents lower or 0.73% down at 68.5 cents.
