ISDN Holdings - CGS-CIMB Research 2021-01-06: Re-rating On The Cards


ISDN Holdings - Re-rating On The Cards

  • We reiterate our view that ISDN (SGX:I07) is on track to report a record net profit in FY20F.
  • We see re-rating catalysts from its FY20 results and possible monetisation of its Indonesian hydropower business in 2021.
  • We believe ISDN’s demand outlook is stronger than we previously expected, hence our revised forecasts leading to a higher target price.

Re-rating catalyst 1 - Benefitting from China’s growth

  • According to Fitch Ratings (10 Dec 2020), China’s gross domestic product is expected to grow 8% in 2021, up from an earlier 7.7% forecast in Sep 20. Resumption of economic activities and the availability of COVID-19 vaccines should help support economic growth.
  • As China accounted for 62% of 1H20 revenue, we believe that ISDN will benefit from its economic growth. In addition, we note that ISDN has also been benefitting from the accelerated push for automation in China due to the COVID-19 outbreak.

Re-rating catalyst 2 – Stronger demand outlook for semiconductors

  • We estimate that the semiconductor segment accounted for c.23% of ISDN’s 1H20 revenue. With World Semiconductor Trade Statistics (WSTS) projecting 8.4% growth in global semiconductor sales in 2021, we believe ISDN should be a beneficiary.
  • As ISDN also supplies its products to contract manufacturers that assemble smartphones, we think ISDN should also benefit from the upcoming 5G smartphone replacement cycle.

Re-rating catalyst 3 – Monetisation of hydropower business

  • We think there is a chance that ISDN’s monetisation of its Indonesian hydropower business could happen in 2021. We note that on 16 Dec 2020, ISDN raised its stake in Aenergy (which holds its hydropower business in Indonesia) from 50.0% to 67.14%. With Indonesia scheduled to commence its COVID-19 vaccination programme in Jan 2021, it is possible that ISDN may be able to commence operations of its hydropower business this year.

Reiterate ADD, higher target price of S$0.72 for ISDN on better revenue prospects

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2021-01-06
SGX Stock Analyst Report ADD MAINTAIN ADD 0.72 UP 0.648