SINGAPORE (May 17): UOB Kay Hian is reiterating its “buy” call on ISDN Holdings with a target price of 36.5 cents after the group delivered a stellar 1Q18 results, with earnings trebling to $5.2 million from $1.7 million in 1Q17.
This was mainly due to a strong growth in revenue, as well as the absence of one-off listing expenses and net foreign exchange losses.
1Q18 revenue grew 12.6% to $76.2 million, from $67.7 million a year ago.
See: ISDN sees 1Q earnings treble to $5.2 mil
The key factors driving the group’s businesses in Southeast Asia includes demand for its high-tech precision control systems from medical devices manufacturers; as growing customer base and higher orders, especially in China; as well as the adoption of advanced automated process for industrial robots in manufacturing.
Meanwhile, China’s manufacturing purchasing managers’ index (PMI) was generally stable or improved, whether it is the official PMI or Caixin/Markit Manufacturing PMI, both of which topped economists’ forecasts for a modest slowdown.
Singapore’s PMI was similar, with the Singapore Institute of Purchasing & Materials Management’s PMI coming in at 52.9 in April.
In addition, the group’s management has a positive outlook for its core motion control and other specialised engineering solutions.
The group believes that its business will continue to be driven by growing demand for high-tech precision control systems from medical devices, semiconductor, transportation, oil & gas and railway industries, as well as the growing customer base and orders in China.
In a Tuesday report, analyst Edison Chen says, “The company’s early move into the Chinese market was well-timed and ISDN continues to reap the benefits of steady headline growth. We expect ISDN to grow at a clip faster than that of the markets it operates in and build up a growing cash hoard.”
Moreover, the management has emphasised continued efforts to explore opportunities in renewable-energy sectors through strategic partnerships and other forms of collaboration. Potential moves to diversify may smoothen out earnings in a cyclical sector and allow investors to participate in new areas of growth.
“However, we think the risks of this move (which include managerial hubris and misplaced management resources) bears repeating,” adds Chen.
Historically, the group’s growth trajectory was at a clip faster compared to the markets it operates in and the analyst expects this trend to persist into 2020 on the back of supportive government policies and general uptick in automation from factory upgrades.
As at 11.00am, shares in ISDN are trading at 22 cents or 0.5 time FY18 book with a dividend yield of 4.3%.
