1Q09 performance in line. CSE posted S$8.1m net profit (-33% y-o-y, flat q-o-q) and S$95m revenue (-10% y-o-y, -17% q-o-q) for 1Q09, which were within our expectation. But operating cash flow of S$0.9m was lower than we expected. Going forward, management believes that CSE can generate c.S$12m operating cash every quarter as more payment milestones are reached in 2Q/3Q 2009. A reduction in work-in-progress and increase in receivables also show that more projects are approaching payment milestones.

FY09F earnings raised by 7% on higher order win assumption. CSE's outstanding order book stood at S$342.8m, up 27% q-o-q, as it benefited from the UK healthcare contract win. It secured S$161m worth of new orders in 1Q09. Non-healthcare wins were worth S$102m while the UK healthcare win was worth S$58m. Management expects to secure another S$100m-150m of orders in 2Q09. Given its healthy order wins, we raised FY09F order win assumption to S$400m (from S$370m). This raised FY09F earnings by 7%.

Term loans to ensure more flexible cash management. Management is confident of converting the bulk of its short-term debt to a 3-year term loan in 2Q09. Our revised target price of S$0.66 is pegged to 7.5x FY09F PER, which is the average valuation of mid-tier oil & gas peers.