Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

Positive profit alert: more than 50% growth
■ ISDN has issued a positive profit alert guiding that 1H21 profit after tax (PAT) will grow more than 50% yoy driven by its industrial automation business.

ISDN

Share price: 
71 c

Target: 
84 c

■ At a minimum 50% yoy growth, 1H21 PAT will form 59.4% of our FY21F forecast, better than FY20’s 45.0% achievement ratio.

■ Reiterate Add. We expect ISDN to report 1H21 results in the week of 9 Aug 21.


IA revenue

Positive profit alert
● ISDN has issued a positive profit alert.

● The group expects 1H21 PAT to grow more than 50% yoy based on its preliminary review of the unaudited financial results. The strong performance is driven by continued growth from its core industrial automation business.

● In FY20, ISDN also issued a positive profit alert on 28 Jul 20, guiding that 1H20 net profit was expected to grow by more than 50% yoy. On 7 Aug 20, ISDN released its 1H20 results whereby net profit grew by 72.5% yoy.

2Q21 profit expectations
● Assuming a minimum 50% yoy PAT growth, 1H21F PAT will reach a minimum of S$19.3m, forming 59.4% of our FY21F PAT forecast.

● This will be a stronger performance compared to last year. In FY20, 1H20 PAT formed 45.0% of the full-year performance (excluding exceptional items).

● Based on 1H19 and 1H20 profit distributions between shareholders of the company and minority interests, 2Q21 net profit could range between S$6.8m and S$8.3m, or 5-28% yoy growth.

Yasakawa confirms strong industry outlook
● Yasakawa Electric Corporation (6506 JP, NR), a supplier to ISDN, similarly reported (on 9 Jul 21) strong results; its 1QFY3/22 revenue growth was 31.1% yoy.

● Yasakawa also confirmed strong demand for motion control and robotics products, leading the company to raise its FY22F revenue forecast by 7.0%.

Reiterate Add
williamtng4.14William Tng, CFA, analyst● We reiterate our Add call on ISDN and TP of S$0.84 still based on 12.5x Singapore tech sector’s CY22 average P/E (currently the sector average excluding ISDN & Nanofilm is 12.2x).

● 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 cost overruns in its hydropower business and disruption to business activities due to the ongoing Covid-19 pandemic.


Full report here


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