CGS-CIMB Research analyst William Tng has maintained his “add” rating on ISDN Holdings with a higher target price of 72 cents from 64.8 cents previously, as he sees a re-rating of the company’s share price on the cards.
Tng also believes that the company is “on track” to deliver a five-year record high revenue and net profit in FY2020F despite the Covid-19 pandemic.
On this, Tng has identified three re-rating catalysts for ISDN.
First, ISDN may benefit from China’s growth.
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According to a report by Fitch Ratings on Dec 10, 2020, China’s gross domestic product (GDP) is expected to grow 8% in 2021, up from the 7.7% predicted in Sept 2020.
The resumption of economic activities and the availability of Covid-19 vaccines should help the country further support economic growth.
“As China accounted for 62% of 1HFY2020 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,” says Tng.
Second, a stronger demand outlook for semiconductors will contribute to the company’s top line.
The semiconductor segment accounted for about 23% of ISDN’s 1HFY2020 revenue and that looks set to grow.
The World Semiconductor Trade Statistics (WSTS) projected an 8.4% growth in semiconductor sales in 2021, which ISDN should be a beneficiary of, notes Tng.
SEE: ISDN Holdings' 1H20 results better than expected; Covid-19 proves to be welcome surprise: CGS-CIMB
“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.”
Finally, Tng believes that ISDN’s monetisation of its hydropower business in Indonesia could take place in 2021.
On Dec 16, 2020, the company raised its stake in Aenergy, which holds its hydropower business in Indonesia, to 67.14% from 50.5% previously.
It is likely, says Tng, that the company may be able to resume its operations in its hydropower business in 2021 due to the commencement of Indonesia’s Covid-19 vaccination programme in January.
On the back of better revenue prospects, Tng has raised his earnings per share (EPS) forecasts for FY2020 to FY2022F by 10.9 to 13.7%, in addition to a higher target price.
As at 4.28pm, shares in ISDN are trading 5.5 cents higher or 10.4% up at 58.5 cents.
