HOLD S$1.08 STI : 2,796.22
Price Target : 12-month S$ 1.20 (Prev S$ 1.35)
Reason for Report : Earnings Revision
Potential Catalyst: New order wins in 3Q11F
DBSV vs Consensus: 4% below FY11/12F consensus
• Excluding one-off provision of S$21.7m, core profit of S$11m fell short of our S$15m estimate.
• New order wins of S$110m was below our S$125m estimate although 3Q11F could be a record quarter in terms of new order wins.
• FY11F/12F core earnings lowered by 8%/4%.
HOLD at lower TP of S$1.20. New order wins in 3Q11F would be the key catalyst for the stock. Provisions made for cost overruns in Middle East. CSE reported headline loss of S$7m due to S$21.7m provision for project cost overruns in the Middle East – for two projects in Saudi Arabia and two projects in the UAE. Excluding after tax impact of the provisions, core profit of S$11m (-17% QoQ, -27% YoY) fell short of our estimate due to lower revenue from Middle East. The Managing Director for the telecom business unit has resigned and Mr. Tan Mok Koon, Executive Deputy Chairman, has taken over, as the Interim Managing Director for the business unit while a new Managing Director will start on 26 September. Management is confident that excluding the provision, FY11F profit can grow.
FY11F order wins lowered slightly to S$500 from S$520 earlier. 2Q11 new order wins of S$110m (+5% QoQ, -5% YoY) fell short of our estimate of S$125m due to Middle East woes. However, CSE could see order wins of up to S$200m in 3Q11F and has already announced order wins worth S$83m from Middle East on 8 Aug. Australia for LNG, North America for upstream and Middle East (Qatar, Oman and Iran) for downstream projects should be the key drivers.
FY11F/12F core earnings trimmed 8%/4 on lower order win assumptions. Our lower TP is based on 10x-blended FY11F-12F EPS (25% discount to historical average of 12.5x). PER re-rating is possible with more order win announcements in 3Q11F.
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