ISDN Holdings - CGS-CIMB Research 2020-11-17: On Track For A Record FY20F


ISDN Holdings - On Track For A Record FY20F

  • In its 3Q20 business update call today, ISDN reiterated its optimism for its 4Q20F outlook, driven by still-strong order book.
  • We think ISDN is on track to report a 5-year record high net profit of S$18.7m in FY20F.
  • Reiterate ADD on ISDN with S$0.65 target price.

ISDN's 3Q20 business update call

  • ISDN (SGX:I07) held a call this afternoon to discuss its 3Q20 business update (results released on 4 Nov 2020). Management remains optimistic of the outlook for 4Q20F based on its still-strong order book, driven by the ongoing industrial automation trend. ISDN is also working hard to improve on the 25.8% gross profit margin achieved in 9M20.
  • For its non-core mini hydropower plants business, management aims to have the first two plants operational by 1Q21F and the third plant by 2Q-3Q21F. The progress in the hydropower business is subject to travel restrictions due to the COVID-19 pandemic. ISDN has also started preliminary inquiries on monetisation options for its hydropower business.

Recent data points support ISDN’s optimism

  • As China accounted for c.64% of ISDN’s 9M20 revenue, recent positive economic data bodes well for ISDN’s potential performance in 4Q20F.
  • According to data from China’s National Bureau of Statistics (NBS), industrial production grew 6.9% y-o-y in Oct 2020. Within industrial production, manufacturing grew 7.5% y-o-y and within manufacturing, production of new energy vehicles rose 94.1% y-o-y, while production of microcomputers and integrated circuits grew 28.0% and 20.4 % y-o-y respectively, as China stepped up efforts to grow its domestic technology sector.
  • We think ISDN will be a potential beneficiary of this trend as the company, being Singapore based, is a neutral party in the US-China trade dispute and also, ISDN’s products are non-US in origin.

Reiterate ADD on ISDN

  • We reiterate our ADD rating and target price of S$0.65 based on 12x (46% discount to peer average) FY22F earnings. We believe ISDN is on track to deliver a 5-year record high revenue and net profit in FY20F despite the COVID-19 pandemic.
  • 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 industrial automation business and profit contribution from its hydropower segment.
  • Downside risks are order delays, cost overruns in its hydropower business and a prolonged COVID-19 outbreak.

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-11-17
SGX Stock Analyst Report ADD MAINTAIN ADD 0.648 SAME 0.648