CGS-CIMB Research analyst William Tng has maintained his “hold” call and raised his target price on ISDN Holdings from 39 cents to 42 cents.
This comes after the company’s 3QFY2022 results ended September had beaten his expectations, both for the top and bottom line.
Tng notes that revenue for the quarter came in at $95.8 million, 5% above his $91.2 million forecast, and net profit stood at $4.5 million, 50% above his $3 million forecast.
However, on a y-o-y basis, 3QFY2022 revenue fell by 10.2%, while net profit dropped 47.7%.
Tng says the decline in revenue for 3QFY2022 was due to headwinds in cyclical industries in China, such as the electronics and automotive industries, as well as a weaker exchange rate from the Chinese yuan (RMB) to the US dollar (USD) and Singapore dollar (SGD).
For the net profit, he thinks that the outperformance is due to “smaller than feared unrealised foreign exchange losses”, although he does point out that no detailed financials were disclosed.
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For its 9MFY2022, ISDN reported revenue of $286.5 million, 11.5% weaker y-o-y and net profit of $15.6 million, down 25.8% y-o-y.
The decline in the 9MFY2022 revenue was attributed by ISDN to factors including inventory stock ups by customers to offset supply chain shortages supply, as well as production disruptions in China due to its Covid-19 lockdowns.
Other reasons also included the cyclical downturn in certain segments of the semiconductor industry, machine tools, and industrial automation; and the RMB’s depreciation against the Singapore dollar.
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Moving forward, Tng points out that ISDN expects “stabilising cyclical factors” in China as customers have less stock-up activity, coupled with improving component shortages for the automotive industry.
The company guided that its long-term outlook hinges on China’s Covid-19 lockdown policies and reopening activities which affect factory operations and the supply chain.
In its 9MFY2022 business update release, ISDN also thinks that the RMB will stem its decline as China opens up its economy in the coming months.
Outside of China, ISDN also sees growth in its non-Chinese operations’ revenue, which grew 22% y-o-y in 9MFY2022, although no numbers were disclosed.
Given the better-than-expected revenue performance, Tng raises his FY2022-FY2024 revenue forecasts by 1.8%-1.9%, leading to a 7.5%-7.8% increase in his earnings per share (EPS) forecasts and the raised target price.
However, he explains that he will maintain his “hold” call, pending greater clarity on the reopening of its key China market, which makes up about 70% of ISDN’s revenue.
As of 10.41am, shares of ISDN were trading at 38 cents, with a FY2022 P/B ratio of 0.8x and dividend yield of 2.93%.
