ISDN Holdings Limited - NRA Capital Research 2017-06-15: 2Q17 Outlook Remains Positive

ISDN Holdings Limited - NRA Capital Research 2017-06-15: 2q17 Outlook Remains Positive ISDN HOLDINGS LIMITED SGX: I07

ISDN Holdings Limited - 2q17 Outlook Remains Positive

Clocked strong growth in 2Q17

  • ISDN’s 1Q17 revenue grew by 11.6% or S$7m year-on-year to S$67.7m.
  • What’s interesting is that net profit attributable to shareholders grew from S$0.65m a year ago to S$1.72m in 1Q17 as higher economies of scale led to more of gross profit gains to flow to the bottom line. 
  • Profitability would have been higher if not for S$0.4m of professional expenses incurred in connection with its listing in Hong Kong.

Key themes remain intact

  • We continue to see ISDN as a beneficiary of strong growth in the semiconductor equipment industry, higher investment in industrial automation and higher infrastructure spending.
  • For FY17, we are maintaining our forecasts of S$281.6m revenue and S$8.6m PATMI, translating to growth of 9% and 65% respectively. We expect profitability to further improve in 2Q17 due to the absence of listing costs. 1Q17 is a typical seasonal low due to fewer working days and new year holidays.

Collaboration with leading solar manufacturer

  • In May, ISDN announced that it has entered into a strategic cooperation framework agreement with Comtec Solar Systems Group Limited for the development, design, construction and operation of solar power generation station projects. ISDN has traditionally been investing in the China and Indonesian markets.
  • In Indonesia, ISDN’s associated company is building hydropower plants, of which the first plant will be completed by mid-2018. This collaboration will allow ISDN to extend its renewable energy business to include solar power projects in Indonesia or China.

Strong balance sheet supportive of higher dividends and M&A

  • Net cash per share remained at 26.0% of ISDN’s market capitalisation as higher working capital requirements negated cash obtained from its HKSE listing. However, we reckon that ISDN may either commit to or raise dividends with the improved profitability in 2017.
  • We expect dividends of 0.4 to 0.5 cents in 2017 if we assume a minimum pay-out ratio of 20%. At the same time, ISDN may also become more active in M&A and investment activity following its recent venture into corporate finance with Emmett Capital.

Valuation maintained at 32 cents per share

  • In this update, we keep our forecasts and valuation of ISDN unchanged from our last report on 29 March, except for dividends. Assuming a 20% pay-out ratio, dividend per share is expected to rise to 0.44 cents in 2017. At S$0.225, ISDN trades at 10.3x FY17 earnings and about 0.9x net tangible assets, probably lagging that of some of its peers.
  • Our valuation of 32 cents translates to about 14.7x FY17 earnings. On balance, we maintain our Overweight rating with a high-average return and low risk classification.

Liu Jinshu NRA Capital Research | http://www.nracapital.com/ 2017-06-15
SGX Stock Analyst Report OVERWEIGHT Maintain OVERWEIGHT 0.320 Same 0.320