$CSE Global(544.SI) Ah good to see the 3Q2017 financials. Let me see if I can decipher what is happening

1) 9M2017 Net Loss of S$7.8 million

This is due to the one off OFAC settlement of S$16.8 million which was paid in 3Q. So this net loss is expected. Reversing out this one off payout, we would see a net profit of ~S$9 million for 9M2017, which is still ~40% lower than 9M2016 profit.

Decrease in profit before exceptional items mainly due to a) margin compression from O&G and increase in allowance for doubtful debts

2) New orders up to 9M2017 of S$295 million vs full year 2016 of S$286.6 million (See attached image)

- In 9 months of 2017 the new orders exceeded full year 2016 new orders, this seems to indicate that the new orderbook is increasing and extrapolating full year 2017 new orders could be S$393 million vs S$286.6 million in 2016

Taking into account that Brent oil crossed the US$60 per barrel price sometime in Oct 2017, I expect that the orderbook will continue to increase with more O&G projects coming online with oil price above US$60 per barrel.

3) Net cash position of S$20.6 million as at 3Q2017. Declined from S$35.2 million in 2Q2017

Mainly due to the payout of S$16.8 million for the OFAC settlement (One off). Still a positive sign for Company.

My take on this:

3Q2017 results reflects the company's performance with oil prices below US$50 per barrel. Excluding the one off OFAC settlement, CSE still maintains profitability under challenging conditions in O&G industry (>US$50 per barrel of oil). This is commendable and reflective of the resilience of the company

Question now is whether going forward from here, company's performance will improve? I would hazard a guess to say yes I believe that the company's performance will improve:

1) Oil prices above US$60 per barrel from Oct 2017 onwards. As long as oil price stabilises above this level, we will definitely see an increase in orderbook for CSE.

2) Already 9M2017 new orders of S$295 million exceeds full year 2016 new orders of S$286.6 million. This gives me indication that orderbook is already increasing.

3) Margin compression in O&G i believe is here to stay, but as long as revenue increases more than margin compression, I think CSE should do well.

4) What I will keep my eye out on is the doubtful debts of the company which the company is currently reviewing. My take is as long as oil price stabilises above US$60 per barrel, this issue should be less of a concern.

Nice to see a strong sell down today, which I guess is a knee jerk reaction to the recent buyers who only saw a net loss of S$7.8 million and got spooked :)

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Dividends could be at risk here with lower cash hoard as well as expected larger OCF required for the greenfield projects in the pipeline. What’s your view?


Reply to @tockhuattan : Thanks for your input. Very sensible view on this matter and makes a lot of sense. I guess with the measures put forth by the management will inadvertently improve CF in the short term but may compromise medium and long term growth. Revenue stream is shorter and profit margin will be narrower with brownfield projects as we know. But again there is no silver bullet at current market condition and I am confident that the management is prudent and able to strike a good balance on this...thanks once again.

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I would think its a combination of factors. lower gross margins + impairment for receivables that cannot be collected drag down their performance. It would take a while to really see a substantial turnaround


Margin compression is quite a deterrent

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