On 12 May 2023, CSE Global Ltd (“CSE”) have announced their first quarter business update for 2023. It is a relatively brief announcement, with only updates to their revenue which saw an increase as compared to the previous financial year. There will be a need to keep an eye out for the upcoming half year announcement to determine if the increase in revenue is able to translate to a stronger financial performance and position.
Website: General Announcement::Interim Business Updates For The First Quarter Ended 31 March 2023
Photo source: 5 things I like about CSE Global
Background
CSE is a Singapore-based technology company, which offers total integrated solutions to industries in the automation, telecommunications and environmental sectors. The Company is engaged in the business of systems integration solution and the provision of computer network systems.
The Company operates through Process Controls and Communications & Security segments. The Process Controls segment provides process control solutions that utilize supervisory control and data acquisition systems (“SCADA”), distributed control systems (“DCS”), programmable logic controllers (“PLCs”), motors, drives and plant transducers.
Its geographical segments include Asia-Pacific, America and Europe/Middle East. It offers safety critical solutions, including emergency shutdown systems, process shutdown systems, and integrated control and safety systems. Its products and services are installed on production facilities, as well as on drilling rigs.
Financial highlights
Revenue
| Metrics | Current | Previous |
|---|---|---|
| Revenue | +35.5% | +19.0% |
It was noted the revenue increased by 35.5% to SGD159.4 million for the first quarter of FY2023 when compared to the SGD117.6 million in the previous financial year. The metrics is Favorable.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | No Info | -68.4% |
Based on the announcement on 12 May 2023, earnings per share was not included in the business update for the first quarter of 2023.
The metrics was Unfavorable as at 31 December 2022. In the previous financial year, despite the significant revenue increase, EPS had decreased significantly by 68.4%. My expectations is that it will likely to continue be unfavorable for the first half of 2023.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | No Info | -100.0% |
Based on the announcement on 12 May 2023, cash flow was not included in the business update for the first quarter of 2023.
There was an indication of cashflow issues as at 31 December 2022. Assuming no changes, the metrics is Unfavorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.13 | 1.00 |
Based on the announcement on 12 May 2023, Net Asset Value (“NAV”) was not included in the business update for the first quarter of 2023.
NAV of the Group as at 31 December 2022 was SGD0.345 per share. Based on the closing share price of SGD0.390 as at 30 June 2023, this translates to a Price-to-book (“P/B”) ratio of 1.13. The metrics is Neutral as you are paying a slight premium for the book value of the asset.
Debt-to-equity ratio
| Metrics | Current | Previous |
|---|---|---|
| Debt-to-equity ratio | No Info | 131.9% |
Based on the announcement on 12 May 2023, financial position was not included in the business update for the first quarter of 2023.
Debt-to-equity ratio as at 31 December 2022 stands at 131.9%. This is based on the total equity of SGD212 million and liabilities of SGD280 million. There is a significant increase in loans and borrowings of the Group in the previous financial year. The metrics is Unfavorable as it is an indication that CSE may be reliant on external funding for operations.
Interest coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 2.4x | No Info |
Based on the announcement on 12 May 2023, interest expense and profit before tax was not included in the business update for the first quarter of 2023.
The interest coverage stands at 2.4 times as at 31 December 2022, using profit before tax of SGD8.3 million and interest expense of SGD5.8 million. The metric is Unfavorable as the interest coverage is lower than my preference of 5.0 times. This is a concern as interest rates continue to rise as the world looks to tackle inflation. The Federal Reserve on 22 June 2023 have hinted to continue hiking interest rates, after their last rate hike in 3 May 2023 have brough the interest rates to a range between 5.00% and 5.25%.
Website: US Fed official says more rate hikes necessary
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 3.85% | SGD 0.015 |
| 2022 | 7.05% | SGD 0.028 |
| 2021 | 7.05% | SGD 0.028 |
| 2020 | 7.05% | SGD 0.028 |
| 2019 | 7.05% | SGD 0.028 |
| 2018 | 7.05% | SGD 0.028 |
The Company does not have a formal dividend policy but the Board have represented that they will strive to provide sustainable dividend payouts.
Since 2015, CSE have been consistently giving dividends of 2.75 cents per share. Despite the recent 1 rights share for every 5 ordinary shares in November 2022, management have still declared a final dividend of SGD0.015 per share although there is an enlarged share base.
This is an indication that management may be intending to continue their dividend payout of SGD0.0275 per share in 2023. At 30 June 2023, with a closing share price of SGD0.390 and an expected payout of SGD0.0275, this translates to a dividend yield of 7.05%. For my benchmark, a general reasonable range would be around an average of 5.5% to 6.5% in the current environment. CSE is above the range.
Website: Reasonable Dividend Yield 2023Q3
For CSE, prior to Covid-19, this dividend payout has been sustainable. Ever since Covid-19 however, their earnings per share have been affected, with the current FY2022 earnings per share to be SGD0.0089 which is insufficient to cover the dividend payout.
They can still maintain their dividend yield as they could adjust the net profit into net profit before depreciation/amortization which would result in the adjusted earnings per share below, which are more than sufficient to cover the dividend payout.
| Description | Amount |
|---|---|
| Net Profit | SGD 4,808,000 |
| Depreciation and amortization adjustment | SGD 19,825,000 |
| Adjusted net profit | SGD 24,633,000 |
| Number of shares | 618,548,000 |
| Adjusted earnings per share | SGD0.040 per share |
The issue with this however is by doing so, management signaling that there is not much capital expenditure required to replace their assets. Annual repair and maintenance will be sufficient to maintain their assets, which is cheaper than purchasing a new asset. Investors will need to take note if they are comfortable with the idea that their assets are able to last longer than the pre-determined useful lives as at 31 December 2022. Personally I would rather they cut dividends for the next few years until they are able to generate sustainable profits.
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | +35.5% | Favorable |
| Earnings per share | -68.4% | Unfavorable |
| Operating Cash Flows | -100.0% | Unfavorable |
| Price to Book Ratio | 1.13 | Neutral |
| Debt-to-equity ratio | 131.9% | Unfavorable |
| Interest Coverage | 2.4x | Unfavorable |
| Overall | | Unfavorable |
There are limited updates this quarter. CSE has done well in the revenue metrics but as seen in the previous financial year, the increase in revenue did not significantly help with their overall financial performance and position given the unfavorable macro environment. Investors do need to keep an eye out for any upcoming new information relating to their half year operations.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
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Website: CSE Global Ltd. (SGX: 544): 2022 Full Year Result
