ISDN Holdings Ltd - CGS-CIMB Research 2018-06-20: Motion Control Solution Specialist

ISDN Holdings Ltd - CGS-CIMB Research 2018-06-20: Motion Control Solution Specialist ISDN HOLDINGS LIMITED SGX: I07

ISDN Holdings Ltd - Motion Control Solution Specialist

  • ISDN has more than 30 years of experience in engineering solutions, with core strength in motion control systems.
  • 1Q18 net profit of S$5.2m represents 55% of FY17 net profit of S$9.5m. Management is positive on its long-term earnings outlook. 
  • Its net cash per share as at end Mar-2018 represented 25% of ISDN share price on 19 Jun 2018.
  • ISDN has a 25% dividend payout policy and has been paying dividends for the past five years.
  • ISDN trades at a historical FY17 P/BV of 0.55x against 85% y-o-y net profit growth in FY17.

Motion control solution specialist

  • ISDN is an integrated engineering solutions provider focusing on motion control, industrial computing and other specialised engineering solutions. Headquartered in Singapore, the group has been in business for more than 30 years.
  • In China, ISDN owns a factory that makes products such as hinges and locks, precision gearboxes and other industrial hardware.
  • ISDN was listed on the SGX Mainboard on 24 Nov 2005 and was dual listed on the Stock Exchange of Hong Kong (SEHK) in Jan 2017.

Adds value by offering solutions

  • ISDN adds value by offering modules to meet its customers’ needs, rather than selling them individual components.
  • In its core motion control business (87% of FY17 revenue), ISDN works with Switzerland-based Maxon Motor AG (Unlisted) to supply high-precision drive systems solutions, and German-based Eisele Antriebstechnik to supply precision gear boxes solutions.

Diversification efforts

  • On 3 Mar 2017, ISDN invested in Emmett Capital Pte Ltd to explore opportunities in corporate finance. Emmett hopes to offer comprehensive financing solutions to small- and medium-sized enterprises (SMEs) in infrastructure/renewable energy.
  • On 25 May 2017, ISDN also announced a framework agreement with SEHK Mainboard-listed Comtec Solar Systems Group Limited (712 HK) for the development, design, construction and operation of solar power generation station projects.

Strong balance sheet

  • As at end-Mar 2018, ISDN’s net cash per share was S$0.053 or 25% of its share price on 19 Jun 2018. ISDN has been paying dividends for the past five years. On 20 Jun 2017, ISDN adopted a 25% dividend payout policy.
  • In the past five years, the company has been both profitable at net profit level and has maintained a net cash position.

Management positive on long-term earnings outlook

  • Management is positive on the long-term earnings outlook for the company’s core motion control business, highlighting that the industry is moving forward with Industry 4.0, Internet of Things and collaborative robots that require its solutions. The demand for high tech precision control systems remains strong from the medical devices, semiconductor, transportation, oil & gas and railway industries.

Trades below book value

  • ISDN reported an 85% y-o-y increase in net profit for FY17. 
  • In 1Q18, its net profit rose 202% y-o-y. ISDN’s 1Q18 net profit of S$5.2m represented 55% of its FY17 net profit.
  • The stock is trading at a historical FY17 P/E of 8.6x and P/BV of 0.55x versus its regional peers’ average of 34.7x P/E and 4.9x P/BV.
  • ISDN’s FY17 ROE and dividend yield are 6.3% and 2.9% versus regional peers’ average of 14.4% and 0.9%.

Target Price: N/A

William TNG CFA CGS-CIMB Research | https://research.itradecimb.com/ 2018-06-20
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