CGS-CIMB Research analyst William Tng has upped his target price on ISDN Holdings from 85 cents to $1 and maintained his buy call, after the engineering firm booked the highest profit ever seen in a quarter. 

ISDN’s 3QFY2021 revenue grew 10.2% y-o-y to $106.7 million while net profit grew 56.8% y-o-y to $8.6 million, making 3QFY2021 the most profitable quarter in the company’s history. 

Separately, 9MFY2021 revenue grew 22.7% y-o-y to $323.8 million while 9MFY2021 net profit grew 37.9% y-o-y to $20.8 million. 


See: ISDN reports record 3QFY2021 earnings of $8.6 mil, up 56.8% y-o-y


Tng says 3QFY2021 revenue and net profit stood at 25% and 35% of his full-year forecast, which is in line with expectations for revenue and above expectations for net profit.  

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Gross profit margin expanded to 28.6% in 3QFY2021 versus 27.7% in the same period last year,  while 9MFY2021 gross profit margin was 27.4% versus 25.8% in 9MFY2020.

“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, [and an] incremental increase in revenue from higher-margin Industry 4.0 software and cloud solutions,” he writes. 

Tng also thinks that an improved cost structure, coming with the completion of an upgrade to its IT systems and consolidation of corporate functions to improve efficiency, could also have lifted GPM. 

As such, he raises his FY2021-2023 gross profit margin expectations by 0.2-0.8% points, assuming that ISDN continues to have leeway for further cost improvements, leading to a 2.3-9.4% increase in net profit forecasts.

However, he does warn that some potential downside risks to 4QFY2021 net profit are possible provisions for bad debts, and adjustments for under-provisioning of tax expenses.

On the other hand, ISDN’s mini-hydropower business could be an upside, as the company reported that two of its three mini-hydropower plants in Indonesia were successfully commissioned in September and have already commenced delivering electricity to the regional power grids. 


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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,” Tng concludes.

As of 3.06pm, shares of ISDN traded at 71 cents, with a FY2022 price to book ratio of 1.49 and dividend yield of 2.4%