To recap, CEI’s FY16 revenue fell 1.6% on-year due to the weakening of the O&G industry over 2016, largely due to a customer in the O&G industry that accounted for about 10% of the group’s sales.
A lower USD/SGD exchange rate also resulted in a lower gross profit margin of 23.3% in FY16 versus 25.3% in FY15, while its tax rate was lower due to the write-back of over provision of tax from the previous year.
In a Tuesday note, CIMB analyst William Tng recalls that although there was a slight decline in core net profit for the financial year, which has caused the research house to trimmed its FY17-19 EPS estimates due to lower expectations – CEI’s declared dividend per share (DPS) of 5.2 cents “did not disappoint”.
Together with 1H16 DPS of 4.8 cents, CEI’s FY16 DPS amounted to 10 cents, or nearly 100% of profit.
“We still value CEI using its historical 9-year average P/E of 9.2x. FY19F forecasts are also introduced. We assume an 80% payout ratio leading to prospective FY17-18F dividend yields of 9.5-10.3%,” says Tng.
“If CEI sticks to its 10 cents DPS, dividend yield would be higher at 10.6% for FY17-18F. Potential catalysts are new order wins and stronger USD. Key risks are a slowdown in customer orders and a weaker USD,” he concludes.
As at 1:06pm, shares of CEI are trading 1.1% lower at 93 cents.
