Commendable IPO proceeds
- Net proceeds from potential IPO of Servelec will be S$220m versus our S$192m assumption
- Post-divestment of Servlec, earnings may grow at over 12% CAGR organically, in addition to the potential for inorganic growth
- Maintain BUY with revised TP of S$1.11, as we roll over to FY14F earnings
3Q13 profit missed our estimate slightly due to timing. 3Q13 profit of S$11.5m (+5.8% y-o-y, -8% qo- q) was below our S$13m estimate, as costs were booked for two projects, whose revenues would accrue in 4Q13F. With 9M13 order wins of only S$338m, we trim our FY13F/14F order wins to S$460m/S$500m from S$500m/S$550m. On a positive note, gross margins have been better at 32.5% versus our 31.5% assumption, due to bigger contribution from higher margin offshore projects. We trim FY13F/14F EPS by 2% each.
Three key drivers for organic growth in FY14F. Ex- Servelec, we project CSE to register net profits of
S$33m & S$37m in FY13F & 14F respectively. Safety solutions provider S3 ID Group, acquired in July 2013, is expected to contribute additional profit of ~S$2m in FY14F. Environment business in China could add another S$1-2m profit, while US & Africa are likely to see growth too.
Our TP is based on ex-Servelec business valuation and proceeds from Servelec’s divestment. We apply 9.6x FY14F PE (based on historical average) plus net IPO proceeds of S$220m to derive a target market cap of S$575m, which translates to TP of S$1.11. CSE would be paying out S$144.5m (28 Scts per share) in dividends and retain S$75m.
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