ISDN Holdings (ISDN SP) - UOB Kay Hian 2017-07-26: Outstanding 2Q17 Results Ahead

ISDN Holdings (ISDN SP) - UOB Kay Hian 2017-07-26: Outstanding 2Q17 Results Ahead ISDN HOLDINGS LIMITED I07.SI

ISDN Holdings (ISDN SP) - Outstanding 2Q17 Results Ahead

  • In its upcoming 2Q17 results announcement, ISDN will likely deliver outstanding results as key customers such as Foxconn and AEM are either reporting a > 80% yoy surge in revenue or a 20% mom jump in sales order. 
  • We believe a rosy outlook lies ahead as PMI in both China and Singapore climbed higher in June. ISDN’s formal 25% dividend payout policy will also give investors greater assurance and clarity.
  • Re-iterate BUY with an unchanged target price of S$0.35, pending release of results.



WHAT’S NEW


Outstanding 2Q17 results given key customers’ terrific performance. 

  • Two of ISDN’s top customers are expecting exceptional 2Q17 results ahead. FIH Mobile (better known as Foxconn) is expecting a turnover of US$4.2b-4.5b for 1H17 (+82-84% yoy) while AEM Holdings has announced it received S$182m of sales order as at the end of May 17, an increase of S$30m from 18 Apr 17. 
  • As key contributors of ISDN’s revenue, we believe that this terrific performance by Foxconn and AEM (and possibly the rest of ISDN’s customers) would translate to an outstanding set of 2Q17 results for ISDN.

Rosy outlook as China and Singapore’s PMIs climbed higher in June. 

  • Expanding for the 11th straight month, China’s official June PMI was 51.7, expanding at the quickest pace in three months, buoyed by strong production and new orders. 
  • Production surged to 54.4, marking a strong 1ppt jump from May. New orders in the month also rose to 53.1 from May's 52.3, with export orders surging by 1.3ppt to 52.0, suggesting external demand picked up. 
  • Singapore’s PMI also saw its 10th month of expansion as it rose to 50.9, exceeding economists’ expectations (Bloomberg poll indicated 50.5 or 50.6).

25% dividend policy formally announced. 



STOCK IMPACT


Improved financial performance should unlock value. 

  • Given the rosy outlook and higher dividend policy, the stellar 2Q17 results will likely translate to further unlocking of stock value as investors gain greater confidence in ISDN’s ability to deliver results.


EARNINGS REVISION/RISK

  • No change to earnings.
  • Execution risk.
  • Drastic changes in macroeconomic convictions.


VALUATION/RECOMMENDATION

  • Re-iterate BUY with PE-based target price of S$0.35, implying a 55.5% upside. 
  • At 6.8x 2018F PE and 0.5x 2018F P/B, ISDN trades at a significant discount to its manufacturing peers. 
  • Even conservatively forecasting its hydropower business to contribute zero profits, we can still expect adjusted attributable profits to grow at a 2016-19F CAGR of 21%.


SHARE PRICE CATALYST

  • Better-than-expected results More orders arising from China's Belt and Road drive.




Edison Chen UOB Kay Hian | Yeo Hai Wei UOB Kay Hian | http://research.uobkayhian.com/ 2017-07-26
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.350 Same 0.350



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