CSE announced its long awaited UK healthcare contract win, estimated to be worth over S$40m. Management is optimistic about securing S$200m-S$250m order wins (excluding healthcare win) in 1H09F compared to our 1H09F forecast of S$185m. Maintain BUY for its ability to surprise on the upside and 6.5% yield. Our new target price is S$0.54 is based on normalized early cycle 6.5x PER. The stock carries 3 cents dps (8% yield), which goes ex on 12 May 09.

Healthcare contract from UK finally secured by CSE. CSE, together with BT Global Services, will deploy RiO systems to 25 community and mental health sites in the Southern region of the National Health Services (NHS) National Programme for IT. We estimate that the contract size is worth over S$40m and would be recognized over next 3-4 years. The healthcare business commands higher gross margins of 45% compared to 30% for the oil & gas business.

More order wins in 2Q09F could lead us to revise up our forecasts. On top of S$100m order wins in 1Q09F, management is optimistic of securing S$100m-S$150m order wins in 2Q09 (excluding healthcare contract). If order wins continue at the same pace, FY09F order wins could potentially exceed our forecast of S$370m.

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 6.5% yield.

Trading at 4.7x FY09 PER, lower than oil & gas peers' average of 6.5x. Based on its normalized early cycle PER of 6.5x, our new target price is S$0.54, inline with oil & gas peers' average of 6.5x. Maintain BUY.