CGS-CIMB Research analysts William Tng and Izabella Tan have kept their “add” call on ISDN Holdings with a higher target price of 61 cents from 55 cents previously, as the company’s mini hydropower plant in Indonesia, Anggoci, may obtain its commercial operation date (COD) by the end of the 1QFY2023.
ISDN currently has three hydropower plants. Lau Biang 1 (LB1), Anggoci and Sisira. They are all located in North Sumatra in Indonesia. LB1 and Anggoci have capacities of 10MW each while Sisira has a capacity of 4.6MW. LB1 received its COD as at Dec 31, 2022. The plant would have contributed $2.0 million to the company’s patmi for the 9MFY2022 ended Sept 30, 2022 on a pro forma basis and in line with the analysts’ expectations, according to ISDN at its virtual investor briefing on Jan 13.
At its briefing, ISDN also guided that they are hopeful that Anggoci and Sisira will finally achieve their COD soon.
“As Sisira is a show case and learning project for ISDN, we think the net profit contribution from this plant is low. However, the Anggoci plant which is also 10MW capacity could have a similar net profit potential as LB1,” write the analysts.
“We assume that Anggoci can achieve COD by end-1QFY2023 and contribute to ISDN’s FY2023-FY2024 net profits,” they add. “This leads to 1.2%-2.3% increases in our FY2023-FY2024 revenue forecasts and 8.2%-11.7% increases in our net profit forecasts.”
Accordingly, the analysts’ earnings per share (EPS) estimates for FY2023 to FY2024 have increased by 8.2%-11.7% as well.
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Given the EPS increases, the analysts have increased their TP, which is based on an unchanged P/E multiple of 8.9x, which is at ISDN’s five-year average.
At the same briefing, ISDN guided that it has in total 164MW worth of hydropower concessions (including LB1, Anggoci and Sisira). It added that there are plans to continue building up the mini hydropower business with planned LB2-LB6 plants in the coming years.
“Management also guided that the company would be mindful of improving shareholders’ returns via options such as raising dividend payout as cash flow improves with the COD of the power plants; selling the power plants if it benefits shareholders; and potentially list the mini hydropower plants business,” say Tng and Tan.
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A higher-than-expected profit contribution from ISDN’s hydropower business segment is a re-rating catalyst, in the analysts’ view. Downside risks are the emergence of new Covid-19 strains, which could bring back lockdowns, weak customer demand as the global economy slows, the possibility of bad debts as economic conditions worsen, and failure to achieve COD for Anggoci.
As at 12.19pm, shares in ISDN are trading 0.5 cent higher or 0.9% up at 56 cents.
