SINGAPORE (Feb 20): NRA Capital and UOB Kay Hian are maintaining their “overweight” and “buy” ratings on ISDN Holdings, respectively, with expectations of strong 4Q17 results from the integrated engineering solutions provider on the back of favourable macro conditions.

In a Tuesday report, NRA Capital analyst Liu Jinshu says he continues to like the stock for its steady financial performance, prospect of higher dividends and its strong balance sheet.

He sees the group’s strong 9M momentum to sustain well into 4Q as China’s PMI has remained high, translating to more demand for ISDN’s motion control products and solutions amid a robust manufacturing environment.

As such, Liu has revised his FY17 PATMI forecast to $10.1 million from $8.6 million previously, and expects the group to raise its dividend by 67% to 0.5 cent per share, in line with the stronger results.

The stock has been given a fair value estimate of 32 cents, implying a P/E ratio of 12.5 times or 1.7 times P/E excluding net cash.

“As at 30 Sept 2017, ISDN had net cash of $18.4 million, or 4.67 cents per share on its balance sheet. Net cash had fallen by $6.6 million from the end of 2016 owing to higher working capital requirements following business volume growth, which we interpret as a positive signal,” notes the analyst.

Similarly, UOB lead analyst Edison Chen notes a strong showing by China and its manufacturing sector, along with equally bullish Singapore manufacturing sentiment given record PMI readings for both.

The research house’s unchanged target price of 35 cents for ISDN implies a 51.9% upside and 6.7 times 2018 forward earnings, a significant discount to its manufacturing peers.

Highlighting the positive earnings performance of the group’s key customers, AEM Holdings and Foxconn, he believes this will lead to a stellar set of 2017 results for ISDN.

See: AEM Holdings acquires Finnish MEMs testing provider; expects FY18 to outperform, mulls bonus shares

“Management previously indicated that they were exploring opportunities in the renewables segment and have recently announced that through their associate, they will be conducting R&D on the usage of blockchain technology for the trading and distribution of solar-generated energy,” says Chen.

“This could create new business opportunities for ISDN in the management of and investment in high-quality rooftop distributed solar power generation projects as well as power storage solutions,” he adds.

As at 10:52am, shares in ISDN are trading 2.3% lower at 22 cents or 0.5 times FY18 book.