On 10 August 2023, CSE Global Ltd (“CSE”) have announced their 2023 half year result. Their earnings per share have done better than I previously expected. If they are able to replicate the results for the second half of 2023, it will be sufficient for them to cover the dividend payout.
There is a need however to keep an eye out for their operating cashflows. While it is not unexpected for an increase in receivables and inventories with higher revenue, it has also caused CSE to generated negative operating cashflows for the first half of 2023. It is something investors should take note of.
Website: Financial Statements And Related Announcement::Half Yearly Results
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 | +33.2% | +35.5% |
It was noted the revenue increased by 33.2% to SGD349.3 million for the first half of FY2023 when compared to the SGD262.2 million in the same period of the previous financial year. The metrics is Favorable.
Earnings per share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | +110.6% | No Info |
Earnings per share have increased by 110.6% to SGD0.0179 per share from SGD0.0085 per share in the previous financial year. The significant increase in earnings per share was mainly due to operating expenses increasing only a small proportion of 19.2% as compared to the increase in gross profit by 31.6%. The metrics is Favorable. CSE have certainly able to increase their profits more than I had originally expected.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | -128.6% | No Info |
Operating cashflows have decreased by 128.6% and there is an outflow of SGD1.1 million this half the year despite the increase in profits. The reason is mainly due to slower collection of receivables and a build up of contract assets and inventories. In the short term, this may be an indication of cashflow issues and the metrics is Unfavorable.
Price-to-book ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.25 | 1.13 |
NAV of the Group as at 30 June was SGD0.345 per share. Based on the closing share price of SGD0.435 as at 4 October 2023, this translates to a Price-to-book (“P/B”) ratio of 1.25. The metrics is Neutral as you are paying a premium for the book value of the asset.
Debt-to-equity ratio
| Metrics | Current | Previous |
|---|---|---|
| Debt-to-equity ratio | 166.9% | No Info |
Debt-to-equity ratio as at 30 June 2023 stands at 166.9%. This is based on the total equity of SGD357 million and liabilities of SGD357 million. There is a significant increase in loans and borrowings of the Group by 29% from SGD106 million as at 31 December 2022 to SGD137 million as at 30 June 2023. 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 | 4.1x | No Info |
The interest coverage stands at 4.1 times as at 30 June 2023, using profit before tax of SGD14.7 million and interest expense of SGD4.7 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 20 September 2023 have indicated that interest rates need to stay high for a longer period of time. This was after having increased the interest rates to a range between 5.00% and 5.25% on 26 July 2023, the highest level in 22 years. There is a possibility that long-term interest rates may see an increase over the next few months.
Website: Fed declines to hike, but points to rates staying higher for longer
Dividend yield
| Year | Yield | Total |
|---|---|---|
| 2023 | 6.32% | SGD 0.028 |
| 2022 | 6.32% | SGD 0.028 |
| 2021 | 6.32% | SGD 0.028 |
| 2020 | 6.32% | SGD 0.028 |
| 2019 | 6.32% | SGD 0.028 |
| 2018 | 6.32% | 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 maintained their dividend payout in 2023.
At 4 October 2023, with a closing share price of SGD0.435 and dividend payout of SGD0.0275, this translates to a dividend yield of 6.32%. For my benchmark, a general reasonable range would be around an average of 6.0% to 7.0% in the current environment. CSE is within the range.
Website: Reasonable Dividend Yield 2023Q4
It is worth keeping in mind however that although the earnings per share is able to pay the dividend, CSE has seen a net cash outflow from operations this half of the year. There may be an issue if they are unable to generate the cash to pay the dividends in the future.
The dividend yield is Neutral.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | +33.2% | Favorable |
| Earnings per share | +110.6% | Favorable |
| Operating Cash Flows | -128.6% | Unfavorable |
| Price to Book Ratio | 1.25 | Neutral |
| Debt-to-equity ratio | 166.9% | Unfavorable |
| Interest Coverage | 4.1x | Unfavorable |
| Overall | | Neutral |
Overall, the metrics indicate that it is neutral to invest in CSE. There have definitely been improvements in the earnings sections and CSE have continued to be able to increase revenue. However it may still require some time for their financial position indicators to be favorable that investors will need to take note of.
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): 2023 First Quarter Business Update
