ISDN Holdings - CGS-CIMB Research 2020-03-02: 4Q19 Loss Leads To Underperformance

ISDN HOLDINGS LIMITED (SGX:I07) | SGinvestors.io ISDN HOLDINGS LIMITED (SGX:I07)

ISDN Holdings - 4Q19 Loss Leads To Underperformance

  • ISDN Holdings recorded a net loss of S$0.3m in 4Q19, leading to a FY19 net profit of S$7.0m, which was 25% below our expectations.
  • Core business gross profit margin was 26.8%. FY19 revenue decline was due to trade tensions, as well as non-renewal of certain accounts.
  • Our Target Price decreased to S$0.23 on our lowered earnings forecasts. Reiterate ADD.



FY19 earnings below expectations

  • ISDN Holdings (SGX:I07)'s FY19 core net profit at S$7.0m was 25% below our expectation of S$9.4m. 4Q19 revenue grew 11.5% y-o-y, driven by a growing demand for high-tech precision control systems from medical device manufacturers.
  • In 4Q19, ISDN also recognised construction revenue of approximately S$1.7m, arising from the construction of mini hydropower plants in Indonesia. The industrial automation segment continued to be the key revenue generator, accounting for approximately 98.3% of the group’s total revenue for FY19.
  • 4Q19 losses were due to higher administrative expenses (+18.3% y-o-y as professional fees rose), higher other operating expenses (+10.3% y-o-y due to foreign exchange loss of S$1.3m) and share of loss of associate of S$0.6m.


Outlook

  • In its non-core business, ISDN expects three power plants to commence operations in 2Q20 through 4Q20.
  • The group has also established a programme of cost efficiencies to guard against the negative impact from the Covid-19 outbreak. In its core business, the outlook remains strong as China continues to advocate and invest in industrial automation to progress its Economic Roadmap.



Reiterate ADD

  • We lower our FY20-21F earnings forecasts to reflect softening market conditions. Our Target Price is lowered to S$0.23, based on an unchanged 10x P/E (c.47% discount to its global peers) as we roll over to FY21F.
  • See ISDN Share PriceISDN Target PriceISDN Analyst ReportsISDN Dividend HistoryISDN AnnouncementsISDN Latest News
  • Potential re-rating catalysts for the stock could come from stronger-than-expected sales orders for its mainstay motion-control business and profit contribution from its clean energy segment.
  • Key downside risks are order delays, cost overruns in its energy business, further escalation in the trade war, and worsening of the Covid-19 outbreak.





William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-02
SGX Stock Analyst Report ADD MAINTAIN ADD 0.23 DOWN 0.270



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