CGS-CIMB Research analysts William Tng and Izabella Tan have upgraded ISDN Holdings to “add” with a new target price of 55 cents from 42 cents previously.
ISDN, on Jan 3, announced that its first mini hydropower plant, Lau Biang 1, received its commercial operation date (COD) as at Dec 31, 2022.
The company added that it expects meaningful contributions from the plant for its financial results in the FY2023 and that it will reveal more details in due course.
“We interpret meaningful contribution to mean 5%-10% of net profit and assume that Lau Biang 1 could add an incremental 10% to our FY2023-FY2024 net profit forecasts,” write Tng and Tan.
“Hence, our FY2023-FY2024 earnings per share (EPS) forecasts are raised by 11.1%. Rolling over to FY2024 (previously FY2023), our target price increases to $0.55 based on 8.9x (five-year average P/E multiple),” they add. The average P/E multiple was 8.6x previously.
ISDN has a portfolio of three mini hydropower plants in North Sumatra, Indonesia. Anggoci (10MW capacity) and Sisira (4.6MW capacity) were successfully commissioned in September 2021, although they faced delays in obtaining CODs due to regulatory changes.
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“We are hopeful that these two plants could finally achieve COD within the 1HFY2023,” write Tng and Tan.
China’s Covid-19 updates are also another positive for ISDN.
The country announced that it is shifting its focus to its economy after three years of prioritizing the management of the Covid-19 pandemic. The country will also downgrade Covid-19 to a Class B infection and largely eliminate its quarantine and movement restriction measures on Jan 8.
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The moves, note Tng and Tan, will allow the further resumption of business activities in China. The way they see it, this means business activities could pick up for ISDN from the 2QFY2023 onwards after China rides out the Covid-19 wave in the 1QFY2023.
Further to their report, the analysts see higher-than-expected net profit contribution to ISDN from its hydropower business segment as a re-rating catalyst. On the other hand, the emergence of new Covid-19 strains which could bring back lockdowns, as well as weak customer demand as the global economy slows and the possibility of bad debts as economic conditions worsens, are downside risks.
As at 1.04pm, shares in ISDN are trading 2.5 cents higher or 5.26% up at 50 cents.
