Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

Re-rating catalyst: hydropower earnings

3Q21 net profit was above expectations at 35% of our full-year forecast.

■ Potential hydropower earnings contribution in FY22F could re-rate the shares. Guidance from management could help improve valuation.

■ Reiterate Add with a higher TP of S$1.00 on rollover.

Hydro pic11.21

3Q21: most profitable quarter in its history
ISDN’s 3Q21 revenue grew 10.2% yoy to S$106.7m while net profit grew 56.8% yoy to S$8.6m, making 3Q21 the most profitable quarter in the company’s history.

9M21 revenue grew 22.7% yoy to S$323.8m while 9M21 net profit grew 37.9% yoy to S$20.8m.

3Q21 revenue/net profit at 25%/35% of our full-year forecast was in line/above our expectations.

We note that gross profit margin expanded to 28.6% in 3Q21 versus 27.7% while 9M21 gross profit margin was 27.4% versus 25.8% in 9M20.

Although no detailed explanation was provided in the business update, we think that the improvement in gross profit margin could be due to

a) tapering off of construction-related revenue (for its mini-hydropower plants in Indonesia),

b) incremental increase in revenue from higher margin Industry 4.0 software and cloud solutions, and

c) an improved cost structure with the completion of an upgrade to its IT systems and consolidation of corporate functions to improve efficiency.

The company reported a cash balance of S$59.8m at end Sep-2021.

Raised FY21-23F forecasts
We raise our FY21-23F gross profit margin expectations by 0.2-0.8% pts assuming that ISDN continues to have leeway for further cost improvements, leading to a 2.3-9.4% increase in our net profit forecasts.

Potential downside risks to 4Q21F net profit are

a) possible provisions for bad debts, and
b) adjustments for under provisioning of tax expenses.

FY22F – mini-hydropower business could be upside earnings risk
ISDN reported that two of its three mini-hydropower plants in Indonesia were successfully commissioned in Sep 2021 and have already commenced delivering electricity to the regional power grids.

The company expects to be able to start commercial operations for these two plants in the coming months. We believe ISDN’s valuation can be improved when management is able to share the potential net profit impact from this business with investors.

Reiterate Add, higher TP on rollover
Our TP (S$1.00, previously S$0.85) is derived as follows:
williamtng4.14William Tng, CFA, analysta) we roll over valuation to FY23F, and

b) target P/E (on FY23F EPS) is 12.8x (CY23F sector average P/E multiple).
Previously, we valued ISDN at 12.6x P/E multiple which is the CY22F sector average multiple.

Potential re-rating catalyst is earlier profit contribution from its hydropower segment. Downside risk is prolonged Covid-19 outbreak.

Full report here

You may also be interested in:

You have no rights to post comments

Counter NameLastChange
AEM Holdings2.760-0.020
Avi-Tech Electronics0.250-0.005
Best World1.790-0.020
Broadway Ind0.0890.005
China Sunsine0.385-0.005
Delfi Limited1.030-0.020
Food Empire1.410-0.040
Fortress Minerals0.260-
Geo Energy Res0.410-0.005
GSS Energy0.029-
Hong Leong Finance2.540-
Hongkong Land (USD)3.3500.090
ISDN Holdings0.3500.005
IX Biopharma0.043-
Jiutian Chemical0.025-0.001
KSH Holdings0.240-
Leader Env0.053-
Medtecs Intl0.141-
Nordic Group0.350-
Oxley Holdings0.092-0.001
REX International0.127-
Sinostar PEC0.140-
Southern Alliance Mining0.585-
Straco Corp.0.510-0.005
Sunpower Group0.210-
The Trendlines0.086-
Totm Technologies0.027-
Uni-Asia Group0.875-0.025
Wilmar Intl3.2900.050
Yangzijiang Shipbldg1.670-0.020

We have 2468 guests and one member online

rss_2 NextInsight - Latest News