Excerpts from Tayrona Financial (fka NRA Capital)

Analyst: Liu Jinshu

1H18 Performance Smashes Expectations
1H18 PATMI grew by 113%. ISDN reported a strong set of results for 1H18 with PATMI growing by 113% from S$4.7m in 1H17 to S$10.1m in 1H18.

ISDN

Share price:
21.5 c

Target: 
32 c

The results far exceeded our expectations of S$12.7m for the full year. The positive performance was mainly driven by revenue growth of 17% year-on-year and a 0.9%-point improvement in gross margin.

The former added S$4.2m to gross profit while the latter explained for S$1.4m of incremental gross profit. These gains led 1H18 PATMI to expand by S$5.3m year-on-year.

Foreign exchange gain and other non-recurring gains of approximately S$1m helped to offset against higher operating expenses.


▪ Raising forecasts to factor in strong 1H results. Due to the strong performance in 1H18, we revised our forecasts to expect full year PATMI of S$17.3m for FY18F.

TeoCherKoon11.18aTeo Cher Koon, President and MD of ISDN Holdings. 
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This translates to EPS of 4.4 Singapore cents. Hence, ISDN currently trades at a very conservative forward P/E of 5.1 times.

Downside is further limited by the group’s net cash position of S$17.2m or 4.4 Singapore cents per share.

▪ Targeting emerging industries for growth. During 1H18, the group saw strong demand for precision control systems by medical device manufacturers.

Growing adoption of robotic surgery systems have led to positive demand for ISDN’s products. The group is targeting industries such as medical devices, environmental protection, artificial intelligence and electric vehicles for growth opportunities. Capex growth in these industries should provide opportunities for ISDN.

▪ Key risks. The group has flagged that the business climate is starting to show signs of caution and that the semiconductor and electronic sectors appear to be facing some headwinds following 18 months of growth. Hence, we expect 2H18 PATMI to come in at S$6.8m – somewhat lower than that of 1H18, but still higher than the S$4.8m reported for 2H17.

The group’s performance in 3Q18 will give us more visibility to fine tune forecasts. We highlight that the semiconductor and electronic sectors only account for a portion of the group’s business and that it has built strong presences in other industries such as infrastructure and medical devices in recent years.

▪ Share price has lagged strong financial performance. In this update, we maintain our valuation at S$0.32 per share, which already translates to 48.8% upside from the current share price of S$0.215.

liujinshu2.17Liu Jinshu, analyst, Tayrona Financial.At S$0.32, we value ISDN at 13.2x FY17 EPS and 7.3x FY18F EPS.

At S$0.215, we remain bullish on ISDN and see limited downside even if earnings growth were to slow in subsequent quarters.

Hence, we maintain our overweight rating with a high-average return and low risk view. If the group meets or outperforms our forecasts in subsequent quarters, we may revise our valuation higher.

Full report here.  


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