SINGAPORE (March 30): NRA Capital is recommending investors go “overweight” on ISDN Holdings as its share price is still lagging behind peers despite a rebound in China’s manufacturing sector.
ISDN supplies motion control products that are used in the manufacture of semiconductor equipment as well as high-end locks and hinges for railway and transportation systems.
In a Wednesday update, analyst Liu Jinshu expects group revenue growth of 9% to $281.6 million in FY17.
This will come from a 10% and 5% revenue growth from the motion control engineering solutions segment and others segment respectively.
To recap, ISDN’s revenue grew by 10% y-o-y in 3Q16 and 30% y-o-y in 4Q16 despite lower gross margin, leading PATMI to rebound by 62% to $2.9 million in 4Q16.
“Despite these developments, ISDN’s share price has fallen to 19.7 cents since reaching a high of 27.5 cents on Jan 10 before its dual listing on the HKSE on Jan 12,” says analyst Liu Jinshu in a Wednesday update.
Liu also expects PATMI to jump 67% y-o-y to $8.6 million in FY17 on economies of scale and the absence of IPO expenses and FX losses in FY16.
In addition, 41% of ISDN’s market cap is backed by net cash.
As of Dec 31, ISDN had net cash of $25 million. Adding in $7 million of net proceeds from the listing of new shares in Hong Kong, ISDN has about 8.1 cents of net cash per share.
This is equivalent to 41% of its share price of 19.7 cents which includes 0.3 cent of dividend payable on June 5, 2017.
“Based on the same peer group as per our November 2016 report, ISDN’s current share price lags its peer group average in terms of P/E, P/B and EV/EBITDA despite its stronger net cash balance sheet,” says Liu.
Shares of ISDN are up 0.2 cent at 20 cents.
