Order book concerns may evaporate with 1Q09 results. The stock is trading at all-time low valuations of 3.7x FY09 PER, lower than oil & gas peers' average of 5.6x. Mantain BUY for its ability to surprise on the upside and 8% yield. The stock also carries 3 cents dps (10% yield), which goes ex on 12 May 09.

Order book concerns may fade away with 1Q09 results. While CSE secured new orders worth S$426m (-2% YoY) in FY08, its outstanding order book of S$270m (-16% YoY) disappointed the market. Weak British Pound alone wiped out S$25 m from the order book. Management is confident of securing over S$100m worth of new orders in 1Q09, implying that FY09 order wins could exceed our forecast of S$370m (-13% YoY).

Short-term debt to be converted to term-loan Net gearing went up from 30% to 75% in FY08 as CSE spent (i) S$28m cash in share buyback (ii) S$7m cash in acquiring a US based company. Based on its solid track record; we believe CSE should be able to convert 60-70% of its short-term debt (~S$115m) to term loan of 3-4 years.

Are dividends sustainable? We estimate S$40m operating cash flow (similar to FY07 level) and only S$3m capex in FY09. CSE could pay back S$22m of debt to reduce its net gearing to 50%. This leaves S$15m; enough for meeting our forecast of S$12m (2.5 cents dps), translating to 8% yield.

Our FY09 forecast based on stringent assumptions. While management expects flat revenues in FY09, we forecast 12% decline in revenue, assuming CSE secures S$370m (-13% YoY) worth of new orders in FY09. With 35% gross margin assumptions (versus 37% in FY08); we are stringent in all our assumptions.

Trading at all-time low 3.7x PER. Based on its historical PER range of 3.4x-38.3x, our target price of S$0.42 is pegged at 5x FY09 PER, inline with other oil & gas peers average of 5.6x. Maintain BUY.