CSE Global profit down 43.8% to $3.1m in Q2

The company failed to get more projects for its oil and gas division.

Technology company CSE Global reports a 43.8% YoY fall in core net profits from $5.5m to $3.1m in Q2.

According to CIMB, the company's half-year core net profit fell to S$6.1m, lower by 44.9% YoY, despite resilient revenue with lower EBIT margin from its oil and gas (O&G) division.

EBIT margin compression reached 5.0% in Q2 due to the O&G division barely breaking even (intensifying competition) and offsetting the better performance of the infrastructure division.

CSE Global's contracts of $90m were mainly flow projects, bringing 1H17 order intake to S$208.7m.

Order backlog was stable QoQ with Q1's $204.2m, but it is lacking large greenfield contracts to fuel its 2018 pipeline.

CSE Global said it did not win certain projects and that heightened enquiries have failed in grabbing O&G awards.

The company also said there are still opportunities in the infrastructure segment, but not considered significant.

CSE Global announced an interim dividend of 1.3 cents and forecasted 2017 distribution per share of 2.75 cents.

Here's more from CIMB:

Management explained that the S$16.8m settlement pertained to lawfully rendered oilfield services for a project in Iran in FY12-13, of which payments to suppliers in Europe were unfortunately denominated in US$. Management admitted that there were some lapses in controls with regards to the transaction and moving forward, has applied appropriate measures to prevent this from reoccurring

Management guided that it expects to report weaker net profit for 2H17F (vs. 2H16 net profit of S$10.5m), as execution on large projects won in 1Q17 continue to be delayed from the initial mid-year mark to end-3Q17. In our view, gross margins (GPM) in 2H17F are unlikely be higher than the 25% in 2Q17 unless variation orders emerge. Given the lower guidance, we lower FY17/18/19F GPM to 27.0%/27.5%/27.5% (from 29% p.a. previously). This cuts our FY17/18/19F core EPS by 23.2%/16.4%/16.4%.

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