ISDN Holdings - CGS-CIMB Research 2020-05-29: Strong April Rebound


ISDN Holdings - Strong April Rebound

  • ISDN's 1Q20 revenue/net profit accounted for 27%/37% of our full-year forecasts, above our expectations.
  • As at end-Apr 20, ISDN has achieved 80.4% of our FY20F net profit.
  • Reiterate ADD with higher Target Price of S$0.28.

ISDN's 1Q20 performance above expectations

  • On 27 May, ISDN (SGX:I07) provided a voluntary update on its performance. 1Q20 revenue/net profit of S$79.8m/S$3.1m were above our expectations. 1Q20 revenue (27% of our FY20F) grew 5.7% y-o-y despite disruptions from the Covid-19 outbreak which led to an extended lockdown period for ISDN’s China operations.
  • ISDN's 1Q20 net profit (37% of our FY20F) fell 26.2% y-o-y. Other than revenue and net profit, no other line items for the income statement were provided.

Strong recovery in April

  • By mid-Mar, ISDN had resumed its China operations. In 4M20, ISDN's revenue grew 12.1% y-o-y to S$112.2 while net profit grew 31.4% y-o-y to S$6.7m.
  • For the month of Apr, ISDN generated revenue of S$32.4m and net profit of $3.6m. The recovery was due to a broad-based pickup in business in ISDN’s key markets of Singapore, China and Vietnam. 4M20 net profit accounted for 80.4% of our FY20F net profit.
  • ISDN also disclosed that orders received year-to-date amounted to S$95m.

Introducing anti-Covid-19 products

  • ISDN recently partnered with Germany-based ERST Project GmbH to introduce two disinfectant technologies designed to aid the transition to a post-pandemic environment. These are
    1. Waterliq, a safe, water-based disinfectant capable of deployment through humidifiers in human-safe fine droplets, and is able to kill 99.99% of pathogens; and
    2. Erstotizer, a state-of-the-art disinfecting coating that can keep surfaces virus-free for 6-24 months.
  • Since announcing these two products, ISDN has already secured two commercial deployments, one at major dormitory provider Centurion Corp (SGX:OU8) and another at First Sight International Pte Ltd, an interior designer.

Reiterate ADD; higher S$0.28 target price

  • Given the lack of detailed financials, we assume gross margin improvement as the primary reason for the better-than-expected 1Q20 performance. With our revised gross margin expectations, our FY20-22F net profit forecasts for ISDN increase by 49.2%/20.1%/11.3%.
  • At an unchanged CY21F P/E of 10x (c.57% discount to its global peers), our target price rises to S$0.28 (S$0.23 previously).
  • See ISDN Share Price; ISDN Target Price; ISDN Analyst Reports; ISDN Dividend History; ISDN Announcements; ISDN 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 US-China trade war, and worsening of the Covid-19 outbreak.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-29
SGX Stock Analyst Report ADD MAINTAIN ADD 0.28 UP 0.230