“The automation segment saw higher revenue contribution from control systems projects in the US market, while the communications segment revenue growth was largely driven by its new acquisition of subsidiary RFC Wireless,” writes Yeo.
He adds: “The decline in the electrification segment’s revenue was due to project delays in Australia and New Zealand. Otherwise, we estimate that the electrification segment’s revenue would have grown at a rate of 5% y-o-y.”
Looking forward, CSE Global’s orderbook remains robust at $616 million as at end March.
Although this is about 14% lower than 1QFY2024, Yeo understands that the group is deliberately moving away from higher risk projects with lower returns, including waste water projects.
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This, he notes, frees up capacity to bid for higher return projects such as data centres, infrastructure, and ports, in the coming quarters.
Meanwhile, Yeo does not see that the US tariffs will have any significant impact on CSE Global.
He writes: “Although the company derived 63% of FY2024’s revenue from the US market, revenue from domestic projects are derived locally as opposed to exporting products into the US, which has a risk of incurring tariffs.”
The analyst notes that the materials the group procures are done so locally, while cost increases from components or parts imported from overseas can largely be passed on to its customers.
“Other cost increases can be mitigated by higher tender prices, which can defend its margins from higher component costs,” writes Yeo.
With the group to begin paying 50% earnings of dividends going forward, Yeo has raised his dividend per share (DPS) forecasts, with his FY2026 dividend yield to increase from 5.4% to 6.1%.
Key drivers include the expansion of CSE Global’s communications business via acquisitions and more infrastructure development driving demand for the electrification business segment.
Conversely, downside risks noted by him include unforeseen project cost overruns and arbitration by customers for failure to deliver its services, which could dampen earnings and margins.
As at 3.01 pm, shares in CSE Global are trading 0.5 cents lower 1.14% down at 43.5 cents.
