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l
Equity Research l
Singapore l Oil Equipment & Services - Emerging Companies
16 January 2013
CSE Global
Improving confidence
 We reiterate our Outperform rating on CSE Global (CSE)
with a price target of SGD 1.00, offering 28% potential
upside.
 We cut our 2012E and 2013E EPS by 19% and 10%,
respectively, to account for management‟s lower guidance
but we believe CSE‟s new order wins should boost investor
confidence in the company.
 We value CSE Global based on a Gordon Growth Model
and our price target translates to 9x 2013E PER. CSE
offers an attractive yield of 5.4% (2013E).

Management delivered Australian LNG project as guided.
CSE announced a series of new order wins that started in early
October 2012. Most important of these is an Australian LNG
project, which management has been guiding for some time.
The contract involves a telecommunications system for an LNG
facility in Australia with a total contract value of about SGD
70mn. Management has advised that it is bidding for a similarly
valued additional LNG project in Australia. We are optimistic
that CSE can secure this additional LNG contract.
CSE invests jointly with its founder for Power Diesel. CSE
acquired a 66% stake in Power Diesel Engineering Pte Ltd
(Power Diesel) in November 2012, jointly with CSE‟s founder,
Mr. Tan Mok Koon, who takes 32% stake (remaining 2% stock
with Mr. Vivek Dixit). Mr Tan is the non-executive deputy
chairman of CSE Global and part of the company‟s executive
committee. We would prefer CSE to not co-invest with a
director as it raises questions regarding the executive‟s
commitment to the listco. However, we note that Mr. Tan and
CSE are co-investing at the same time and at the same price,
and Mr. Tan‟s interest in Power Diesel should incentivise him to
grow the business. Mr. Tan has also stepped down as Group
Managing Director since January 2011 and is no longer
involved in CSE‟s day-to-day operations.
Valuations. CSE is currently trading on 7.x 2013E PER, with a
5.4% yield (2013E). We value the stock on a Gordon Growth
Model, using conservative assumptions of equity beta of 1.25
and long-term growth of 0% to incorporate a potential higher
risk with this stock. Over the next three-to-five years, we believe
significant potential exists in CSE‟s UK healthcare, Australia
and environmental businesses.
OUTPERFORM
(unchanged)
PRICE as of 16 Jan 2013
PRICE TARGET
SGD 0.79
SGD 1.00
Bloomberg code
Reuters code
CSE SP
CSES.SI
Market cap
12-month range
SGD 405mn (USD 331mn)
SGD 0.69 - 0.98
EPS adj. est. change 2012E
Year-end: December
Sales (SGD mn)
EBITDA (SGD mn)
EBIT (SGD mn)
Pre-tax profit (SGD mn)
Net profit adj. (SGD mn)
FCF (SGD mn)
EPS adj. (SGD)
DPS (SGD)
Book value/share (SGD)
EPS growth adj. (%)
DPS growth (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Div. payout (%)
Net gearing (%)
ROE (%)
ROCE (%)
EV/sales (x)
EV/EBITDA (x)
PBR (x)
PER adj. (x)
Dividend yield (%)
-18.6%
2011
457
69
63
62
28
(16)
0.05
0.02
0.40
-48.8
-50.0
15.0
13.9
6.0
20.9
34.6
24.7
29.2
1.3
8.7
1.9
20.3
1.8
2013E
2012E
532
83
78
74
45
7
0.09
0.04
0.46
61.5
111.6
15.6
14.7
8.5
40.0
27.2
24.9
34.5
0.9
5.7
1.7
9.1
5.4
-9.7%
2013E
535
83
78
73
55
58
0.11
0.04
0.53
22.0
-0.1
15.6
14.6
10.3
40.0
10.6
21.5
29.9
0.8
5.2
1.5
7.4
5.4
2014E
558
96
90
85
64
53
0.12
0.05
0.60
16.1
16.1
17.1
16.0
11.4
40.0
0.3
21.9
30.1
0.7
4.3
1.3
6.4
6.2
Source: Company, Standard Chartered Research estimates
Share price performance
1.65
0.65
Jan-12
Apr-12
CSE Global
Share price (%)
Ordinary shares
Relative to index
Relative to sector
Major shareholder
Free float
Average turnover (USD)
Jul-12
Oct-12
Jan-13
STRAITS TIMES INDEX (rebased)
-1 mth
-3 mth -12 mth
-1
-10
-16
-2
-15
-27
Fidelity Management & Research (13.2%)
46%
378,852
Source: Company, FactSet
Stephen Hui
[email protected]
+65 6596 8514
Important disclosures can be found in the Disclosures Appendix
CSE SP
All rights reserved. Standard Chartered Bank 2013
SGD 0.79
SGD 1.00
http://research.standardchartered.com
CSE Global
l
16 January 2013
Operational update
We believe CSE‟s recent order wins should improve investor confidence in management‟s ability
to deliver on growth. We expect new orders to improve in 2013 with growth of 15% YoY.
Recent order wins
CSE has announced
three orders as part of
the Inpex LNG project,
which we estimate as
valued at SGD 70mn
CSE Global has won new contracts worth SGD 100.6mn since June 2012. Four of these orders
were placed this year, with the most recent being its third telecommunications order as part of
the Inpex LNG project in Australia and a contract in the UK defence sector.
Fig 1: CSE Global order wins since June 2012
Date of
announcement
Order size
(SGD mn) Description
7 January 2013
26 Third telecommunications order as part of Inpex LNG project in Australia,
and a new project with UK defence sector
3 January 2013
5.6 Implementation of the new Oceano Administration System at a hospital,
and a supply contract for RiO Care Record System at a large community
trust, both in the UK
9 November 2012
36 Order to engineer, procure and construct a telecommunications system for
an LNG facility in Australia, and a contract to engineer, procure and install
two molybdenum roaster hearths in the USA
1 October 2012
33 Order to engineer, procure and construct a telecommunications system for
an LNG offshore facility in Australia, and two mental health projects in the
UK
Source: Company
Acquisition of Power Diesel
CSE co-invested in
Power Diesel, along
with its founder, Tan
Mok Koon
CSE Global collaborated with its founder Tan Mok Koon and Vivek M Dixit to acquire Power
Diesel. Key details of the acquisition are:
 Description: Power Diesel, registered in Singapore, was founded in 2004. The company
provides sales and service of diesel engine parts, primarily servicing the Oil and Gas
industries.
 Acquisition price and valuation: SGD 9.5mn in cash. For annualised 10-months ending 31
October 2012, Power Diesel had earnings of SGD 2.6mn (SGD 2.2mn for 10-months ending
31 October 2012). The acquisition price translates to 3.6x annualised earnings and about 2x
price-to-book.
 Shareholding: CSE, Mr. Tan and Mr. Vivek will own 66%, 32% and 2%, respectively with risk
and rewards in proportion to their respective holdings.
 Rationale: Management believes significant synergies exist between Power Diesel and CSE‟s
business. For example, CSE believes it can target Power Diesel‟s existing customers for
services in the automation sector.
l
Equity Research
l
2
CSE Global
l
16 January 2013
New orders should accelerate in 2013
2012 was a difficult year for CSE – we estimate new orders fell 9% YoY in the year. However, as
it secured orders as part of the Inpex LNG project and due to the potential for an additional LNG
project, we think new orders will improve in 2013E.
We forecast new
order growth of 15%
YoY in 2013E
Fig 2: CSE Global orderbook (2011-2015E)
2011
2012E
2013E
2014E
2015E
373
331
349
392
415
82
63
51
43
38
455
394
400
435
453
15%
-13%
1%
9%
4%
513
462
531
584
631
6
10
10
10
10
519
472
541
594
641
Outstanding orderbook
Oil & gas, infrastructure and mining
Healthcare
Growth %
New orders
Oil & gas, infrastructure and mining
Healthcare
Total new orders
Growth
Oil & gas, infrastructure and mining
Healthcare
Total new orders
30%
-10%
15%
10%
8%
-93%
56%
0%
0%
0%
6%
-9%
15%
10%
8%
Source: Company, Standard Chartered Research estimates
l
Equity Research
l
3
CSE Global
l
16 January 2013
Valuations
CSE is currently trading on 7x 2013E PER with an attractive dividend yield of 5.4%. We value
CSE using the Gordon Growth Model with a 12-month price target of SGD 1.00/share, offering 28%
potential upside.
Gordon Growth Model
Our GGM-based price
target offers a
potential 28% upside
We arrive at a fair value of SGD 1.00/share for CSE Global based on our valuation that uses the
Gordon Growth Model, conservatively assuming 0% long-term growth rate.
Fig 3: Valuation – Gordon growth model
Gordon growth model
ROE
20.2%
Long-term growth
0%
Risk-free rate
2.3%
Equity risk premium
6.6%
Equity beta
1.25
Cost of equity
10.6%
Implied PBR (x)
1.92
Book value per share in 2012E (SGD)
0.52
Price target (SGD)
1.00
Potential upside/downside
28%
Implied PER 2013E (x)
9.48
Source: Standard Chartered Research estimates
Peer comps
CSE Global is currently trading at 7x 2013E PER. There is no direct comparable for the stock but
Singapore listed offshore companies are trading on average at 12x 2013E PER.
Fig 4: Peer comparison
Price
target
3M avg
value
traded
Last
(LCY) (USD mn) (USD mn)
FYE
Price
Market
cap
PER (x)
3 year
EPS
PEG
2012E 2013E 2014E
CAGR
3 years
Last
Div. reported
yield %
ROCE
EV/EBITDA (x)
Name
Ticker
Rating (LCY)
2011 2012E 2013E
2012E
(%)
CSE Global Ltd
CSE SP
OP
1.00
0.79
331
0.36 12/11
9.1
7.4
6.4
31.8
0.2
6.8
5.6
5.6
5.4
10.5
Keppel Corp
KEP SP
OP
12.80
11.08
16,272
34.86 12/11
10.2
12.5
11.6
4.4
2.6
12.7
10.0
11.8
4.0
16.7
SembCorp Marine
SMM SP
OP
5.40
5
8,117
19.47 12/11
19.5
15.2
12.7
3.9
3.2
11.0
13.5
10.3
3.2
29.5
Cosco Corp Singapore
COS SP
UP
0.70
0.99
1,802
5.55 12/11
16.0
14.2
NA
-100.0
NA
8.7
8.6
8.0
2.2
7.1
Ezra Holdings
EZRA SP IL
1.20
1.22
971
7.17 08/12
27.0
16.6
12.0
28.3
0.4
12.9
12.0
9.9
0.0
4.6
Boustead Singapore
BOCS SP OP
1.26
1.12
466
0.20 03/12
10.1
11.3
10.2
1.9
5.4
5.2
5.4
4.9
4.5
21.5
Ezion Holdings
EZI SP
OP
1.88
1.86
1,380
14.24 12/11
24.9
14.2
10.4
35.6
0.3
33.2
17.9
9.5
0.5
15.8
CH Offshore
CHO SP
NR
0.50
288
0.25 06/12
9.8
8.5
NA
0.0
NA
4.7
4.1
NA
6.6
13.5
Swiber Holdings
SWIB SP
NR
0.67
334
1.46 12/11
10.3
7.7
5.9
21.2
0.3
11.4
10.8
8.5
1.5
5.7
PEC
PEC SP
NR
0.69
144
0.27 06/12
13.0
11.5
NA
0.0
NA
2.4
2.1
NA
2.8
6.2
15.7
12.4
10.5
2.0
11.4
9.4
9.0
2.8
13.4
Singapore peers
Average
Source: Companies, Bloomberg, Standard Chartered Research estimates
l
Equity Research
l
4
CSE Global
l
16 January 2013
Historical valuations
CSE has, on average, traded at PER 9x one-year forward over the past five years. The shares
traded as low as PER 3x one-year forward in March 2009 and as high as PER 15x one-year
forward in January 2011.
Fig 5: CSE Global PER band
SGD
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Jan-08
15x
9x
3x
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Source: Standard Chartered Research estimates
l
Equity Research
l
5
CSE Global
l
16 January 2013
Income statement (SGD mn)
Year-end: Dec
Sales
Gross profit
SG&A
Other income
Other expenses
EBIT
Net interest
Associates
Other non-operational
Exceptional items
Pre-tax profit
Taxation
Minority interests
Cash flow statement (SGD mn)
2010
448
167
(96)
4
(3)
72
(5)
1
68
(16)
0
2011
457
166
(105)
5
(3)
63
(3)
1
62
(12)
(0)
2012E
532
160
(120)
5
34
78
(5)
0
74
(18)
(0)
2013E
535
166
(122)
5
29
78
(5)
0
73
(18)
(0)
2014E
558
179
(127)
5
33
90
(4)
0
85
(21)
(0)
Net profit
52
49
55
55
64
Net profit adj.
EBITDA
52
76
28
69
45
83
55
83
64
96
0.10
0.10
0.04
501
0.10
0.05
0.02
516
0.11
0.09
0.04
521
0.11
0.11
0.04
521
0.12
0.12
0.05
521
Year-end: Dec
Cash
Short-term investments
Accounts receivable
Inventory
Other current assets
Total current assets
2010
58
79
120
2
260
2011
54
106
136
3
299
2012E
59
138
157
3
358
2013E
95
132
157
3
388
2014E
123
138
164
3
428
PP&E
Intangible assets
Associates and JVs
Other long-term assets
Total long-term assets
15
76
8
7
107
25
103
9
15
153
28
103
0
15
146
31
102
0
15
148
33
101
0
15
149
Total assets
366
452
504
536
578
Short-term debt
Accounts payable
Other current liabilities
Total current liabilities
32
74
34
141
124
63
56
242
124
77
59
259
124
76
59
258
124
78
59
261
27
4
0
30
0
5
0
5
0
5
0
5
0
5
0
5
0
5
0
5
Total liabilities
171
248
264
264
267
Shareholders‟ funds
Minority interests
195
0
204
0
239
0
272
0
311
0
Total equity
195
204
239
272
311
Total liabilities and equity
366
452
504
536
578
Net debt (cash)
Year-end shares (mn)
1
511
71
516
65
516
29
516
1
516
EPS (SGD)
EPS adj. (SGD)
DPS (SGD)
Avg fully diluted shares (mn)
Balance sheet (SGD mn)
Long-term debt
Convertible bonds
Deferred tax
Other long-term liabilities
Total long-term liabilities
Year-end: Dec
EBIT
Depreciation & amortisation
Net interest
Tax paid
Changes in working capital
Others
Cash flow from operations
2010
72
3
(3)
(16)
8
(7)
58
2011
63
5
(3)
(18)
(49)
(6)
(7)
2012E
78
5
(5)
(18)
(36)
(10)
14
2013E
78
5
(5)
(18)
5
0
65
2014E
90
6
(4)
(21)
(9)
0
61
Capex
Acquisitions
Disposals
Others
Cash flow from investing
(4)
(18)
0
0
(22)
(9)
(40)
1
0
(48)
(7)
0
21
0
14
(7)
0
0
0
(7)
(7)
0
0
0
(7)
Dividends
Issue of shares
Change in debt
Other financing cash flow
Cash flow from financing
(18)
0
(50)
38
(30)
(21)
6
65
0
51
(22)
0
0
0
(22)
(22)
0
0
0
(22)
(25)
0
0
0
(25)
6
(3)
54
(4)
(1)
(16)
6
0
7
36
0
58
28
0
53
2010
2011
2012E
2013E
2014E
37.4
16.9
16.2
11.7
23.5
10.6
20.2
14.2
5.2
14.3
36.4
15.0
13.9
6.0
19.7
2.0
-5.9
-8.6
-48.8
-50.0
30.0
15.6
14.7
8.5
25.0
16.4
11.6
10.5
61.5
111.6
31.0
15.6
14.6
10.3
25.0
0.6
-0.1
-0.1
22.0
-0.1
32.0
17.1
16.0
11.4
25.0
4.3
16.1
16.1
16.1
16.1
31.6
33.9
1.3
0.8
0.7
145.3
64.7
88.1
24.7
29.2
1.1
-0.1
0.5
160.6
74.1
86.1
24.9
34.5
1.1
0.2
0.6
143.5
84.0
68.3
21.5
29.9
1.0
0.8
0.6
155.2
92.2
75.3
21.9
30.1
1.0
0.7
0.7
154.5
88.1
74.0
Leverage ratios
Net gearing (%)
Debt/capital (%)
Interest cover (x)
Debt/EBITDA (x)
Current ratio (x)
0.3
14.9
1.8
34.6
15.8
1.2
27.2
14.4
1.4
10.6
14.4
1.5
0.3
16.4
1.6
Valuation
EV/sales (x)
EV/EBITDA (x)
EV/EBIT (x)
PER (x)
PER adj. (x)
PBR (x)
Dividend yield (%)
1.2
7.0
7.4
9.6
9.6
3.4
4.0
1.3
8.7
9.4
11.3
20.3
1.9
1.8
0.9
5.7
6.1
7.4
9.1
1.7
5.4
0.8
5.2
5.6
7.4
7.4
1.5
5.4
0.7
4.3
4.6
6.4
6.4
1.3
6.2
Change in cash
Exchange rate effect
Free cash flow
Financial ratios and other
Year-end: Dec
Operating ratios
Gross margin (%)
EBITDA margin (%)
EBIT margin (%)
Net margin adj. (%)
Effective tax rate (%)
Sales growth (%)
Net income growth (%)
EPS growth (%)
EPS growth adj. (%)
DPS growth (%)
Efficiency ratios
ROE (%)
ROCE (%)
Asset turnover (x)
Op. cash/EBIT (x)
Depreciation/capex (x)
Inventory days
Accounts receivable days
Accounts payable days
Source: Company, Standard Chartered Research estimates
l
Equity Research
l
6
CSE Global
l
16 January 2013
Disclosures appendix
The information and opinions in this report were prepared by Standard Chartered Bank (Hong Kong) Limited, Standard
Chartered Bank Singapore Branch, Standard Chartered Securities (India) Limited, Standard Chartered Securities Korea
Limited and/or one or more of its affiliates (together with its group of companies, ”SCB”) and the research analyst(s) named in
this report. THIS RESEARCH HAS NOT BEEN PRODUCED IN THE UNITED STATES.
Analyst Certification Disclosure: The research analyst or analysts responsible for the content of this research report certify
that: (1) the views expressed and attributed to the research analyst or analysts in the research report accurately reflect their
personal opinion(s) about the subject securities and issuers and/or other subject matter as appropriate; and (2) no part of his
or her compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this
research report. On a general basis, the efficacy of recommendations is a factor in the performance appraisals of analysts.
Where “disclosure date” appears below, this means the day prior to the report date. All share prices quoted are the closing
price for the business day prior to the date of the report, unless otherwise stated.
Recommendation and price target history for CSE Global
SGD
1.92
3
2
1.67
4
1
1.42
5
6
7
8
1.17
9
0.92
0.67
Feb-10 May-10 Aug-10
Date
1 21 Oct 10
Recommendation
Nov-10
Feb-11 May-11 Aug-11
Price target
Date
Nov-11
Recommendation
Feb-12 May-12 Aug-12
Price target
Date
Nov-12
Recommendation
Feb-13
Price target
OUTPERFORM
1.34
4 24 May 11 OUTPERFORM
1.74
7 14 Nov 11 OUTPERFORM
1.21
2 15 Nov 10 OUTPERFORM
1.58
5 12 Aug 11 OUTPERFORM
1.31
8 29 Feb 12 OUTPERFORM
1.10
3 5 Jan 11
1.92
6 12 Oct 11
1.24
9 16 Aug 12 OUTPERFORM
1.03
OUTPERFORM
OUTPERFORM
Source: FactSet prices, SCB recommendations and price targets
Recommendation Distribution and Investment Banking Relationships
% of covered companies
currently assigned this rating
% of companies assigned this rating
with which SCB has provided investment
banking services over the past 12 months
OUTPERFORM
55.7%
13.0%
IN-LINE
34.6%
14.9%
9.7%
3.3%
UNDERPERFORM
As of 31 December 2012
Research Recommendation
Terminology
Definitions
The total return on the security is expected to outperform the relevant market index by 5% or more
over the next 12 months
The total return on the security is not expected to outperform or underperform the relevant market
IN-LINE (IL)
index by 5% or more over the next 12 months
The total return on the security is expected to underperform the relevant market index by 5% or
UNDERPERFORM (UP)
more over the next 12 months
OUTPERFORM (OP)
SCB uses an investment horizon of 12 months for its price targets.
Additional information, including disclosures, with respect to any securities referred to herein will be available upon
request. Requests should be sent to [email protected].
Global Disclaimer: Standard Chartered Bank and/or its affiliates ("SCB”) makes no representation or warranty of any kind,
express, implied or statutory regarding this document or any information contained or referred to in the document. The
information in this document is provided for information purposes only. It does not constitute any offer, recommendation or
solicitation to any person to enter into any transaction or adopt any hedging, trading or investment strategy, nor does it
constitute any prediction of likely future movements in rates or prices or represent that any such future movements will not
exceed those shown in any illustration. The stated price of the securities mentioned herein, if any, is as of the date indicated
and is not any representation that any transaction can be effected at this price. While all reasonable care has been taken in
preparing this document, no responsibility or liability is accepted for errors of fact or for any opinion expressed herein. The
contents of this document may not be suitable for all investors as it has not been prepared with regard to the specific
investment objectives or financial situation of any particular person. Any investments discussed may not be suitable for all
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