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16-01-2014, 08:53 PM
One thing for sure, 4Q will see a huge profit recognition coming from their divestment gain but this is a one-off gain and the cash had already been paid out as dividends. If market is irrational, there can be some upward pressure on the share price.
They are going to use S$75mln to pare down debts which amounted to S$99mln as of 3Q 2013. So, some debt will remain but interest expense will drop. 9M2013's interest expense was S$4mln which is ~10% of PBT. So at max, PBT will improve by 10% but since not all debt will be paid down, it will probably be somewhere less than that.
We only know how CSE ex-Servelec performed from 2010 onward. 2011 was a bad year as they hit into a cost overrun issue so you can't really say earnings were increasing every year. The circular didn't adjust for that but it was a fact that their operations suffered in 2011. 2013, on an annualized basis, is unlikely to outperform 2012 since order wins have been flat. If you look across the 3 years, CSE ex-Servelec probably earns around S$380mln in revenue and margins averaged around 9%. This implied around S$34mln in average earnings which translated to 12x earnings on XD price.
IMO, i think the key lies in mgmt's long term target. Will they be acquiring more subsidiary? If so, how do they plan to combine their operations together? As much as CSE had successfully grew by organic growth and acquisitions, I suspect the same growth was also partly the cause for their mishap in mismanaging the Middle East projects. They have been acquiring too many subsidiaries that it become hard for them to manage it as a whole or to grow the CSE brand name.
I used to think with their superior cash flow track record, CSE should be at least 12x earnings but all order book driven companies have their discounts. These cash flows are not sticky and can disappear if order wins do not flow through. So eventually, I figured the exit was too tempting for me to ignore and there were also other better opportunities to deploy my cash as well.
Maybe it will become interesting again if they fall by another 30%
They are going to use S$75mln to pare down debts which amounted to S$99mln as of 3Q 2013. So, some debt will remain but interest expense will drop. 9M2013's interest expense was S$4mln which is ~10% of PBT. So at max, PBT will improve by 10% but since not all debt will be paid down, it will probably be somewhere less than that.
We only know how CSE ex-Servelec performed from 2010 onward. 2011 was a bad year as they hit into a cost overrun issue so you can't really say earnings were increasing every year. The circular didn't adjust for that but it was a fact that their operations suffered in 2011. 2013, on an annualized basis, is unlikely to outperform 2012 since order wins have been flat. If you look across the 3 years, CSE ex-Servelec probably earns around S$380mln in revenue and margins averaged around 9%. This implied around S$34mln in average earnings which translated to 12x earnings on XD price.
IMO, i think the key lies in mgmt's long term target. Will they be acquiring more subsidiary? If so, how do they plan to combine their operations together? As much as CSE had successfully grew by organic growth and acquisitions, I suspect the same growth was also partly the cause for their mishap in mismanaging the Middle East projects. They have been acquiring too many subsidiaries that it become hard for them to manage it as a whole or to grow the CSE brand name.
I used to think with their superior cash flow track record, CSE should be at least 12x earnings but all order book driven companies have their discounts. These cash flows are not sticky and can disappear if order wins do not flow through. So eventually, I figured the exit was too tempting for me to ignore and there were also other better opportunities to deploy my cash as well.
Maybe it will become interesting again if they fall by another 30%
"Criticism is the fertilizer of learning." - Sir John Templeton