Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

■ ISDN’s 1Q21 revenue/net profit at 26%/25% of our full-year forecast was in line with our expectations.


Share price: 
63.5 c

84 c

■ The company continues to benefit from the secular transformation from labour-intensive manufacturing to automated manufacturing.

■ We reiterate our Add call with a higher TP of S$0.84, based on Singapore tech sector’s CY22 average P/E of 12.5x.

IA revenue

1Q21 results in line

ISDN provided a voluntary update for 1Q21. 1Q21 revenue/net profit at 26%/25% of our full-year forecast was in line with our expectations.

1Q21 revenue rose 23.4% yoy while gross profit climbed 52.7% yoy.

Gross profit margin expanded by 5.2% pts to 27.0% in 1Q21 from 21.8% in 1Q20 (recall that 1Q20 performance was affected by the onset of Covid-19).Operating expenses rose 14.3% yoy due to the upgrade of its information technology systems.

Other operating expenses fell 91.2% yoy.

Net profit jumped 95.4% yoy to S$6.1m. ISDN reported that there was broad revenue growth across its customer portfolio in 1Q21.

The company continues to benefit from secular trends that it highlighted previously such as a) semiconductor super cycle; semiconductor shortages, b) accelerating Industry 4.0 adoption, and c) accelerated pace of automation to substitute for labour given Covid-19 induced labour issues.

At end-Mar 21, ISDN had cash and cash equivalents of S$54.6m.

Outlook for FY21

According to Mordor Intelligence, the factory automation and industrial controls market is forecasted to grow at a compound annual growth rate (CAGR) of 9.0% to reach US$337.0bn by 2026.

Meticulous Research also expects the global industrial automation market to expand from US$164.2bn in 2020 to US$306.2bn by 2027.

ISDN’s minihydropower plant business in Indonesia came to a standstill as the country battled the Covid-19 pandemic.

ISDN is working hard to restart work to commission its power plants by Jul 21.

Reiterate Add with a higher S$0.84 TP

williamtng4.14William Tng, CFAGiven the positive start to the year, we raise our FY22-23F revenue growth forecasts and we also adjust upwards our gross profit margin assumptions for FY22-23F given ISDN’s ability to maintain gross profit margin at 27% in 1Q21.

Hence, we lift our FY22-23F EPS forecasts by 12.5-13.5%.

At 12.5x Singapore tech sector’s CY22 average P/E (previously 12x), our TP rises to S$0.84.

Potential re-rating catalysts 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.

Full report here.