CGS-CIMB analyst William Tng has maintained his “add” call on ISDN Holdings after the company reported 9MFY2020 earnings of $15.1 million on Nov 4, more than double its earnings of $7.3 million the year before.
Quarter-on-quarter, 3QFY2020 net profit fell 15.4% due to unrealised foreign exchange losses, while 3QFY2020 revenue rose 10.8% q-o-q.
Revenue for the nine-month period rose 24.7% y-o-y to $264.0 million mainly due to continued strong demand for industrial automation from China, as well as growing demand from Southeast Asia including Singapore, Malaysia and Vietnam due to the reconfiguration in global industrial supply chains. The higher revenue was also attributable to increasing construction revenue from mini-hydropower plants in Indonesia.
Both 9MFY2020 net profit and revenue stood at 80% of CGS-CIMB’s full-year estimates, which was in line and exceeded the brokerage’s expectations.
In its business update, the group says its “strategic market position” in industrial automation in China has helped it benefit from the quick recovery of demand from China, and “continues to place it favourably as the PRC continues its multi-year advancement to Industry 4.0 automation”.
See: ISDN Holdings' 1H20 results better than expected; Covid-19 proves to be welcome surprise: CGS-CIMB
Its “continued progression” of its hydropower plant revenues have also helped the group to achieve a stronger performance year-to-date.
The way Tng sees it, things are looking up for the group amid the reconfiguration of global supply chains to the benefit of Southeast Asia amid US-China tensions and the Covid-19 pandemic.
“Given its presence in Singapore and Vietnam, ISDN has gained from such supply chain diversions,” he says.
“At the same time, ISDN’s established presence in industrial automation in China has given the company an edge given the demand recovery there and China’s continued commitment to increase industrial automation. In Indonesia, ISDN’s construction partners are still waiting for the country’s lockdown to be lifted before they fully resume work,” he adds.
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On that, Tng has also upped his target price on the counter to 65 cents from 50 cents previously.
“We roll over valuations to CY22F and raise our P/E multiple peg to 12.0x given ISDN’s continued strong performance. This is still a 40% discount to ISDN’s peers’ 19.9x CY22 price-to-earnings (P/E),” he says.
“Previously, we valued ISDN at CY21F P/E of 10x (c.58% discount to its global peers then). 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,” he adds.
Shares in ISDN closed 0.5 cent higher or 1.3% up at 38 cents on Nov 13.
