CGS-CIMB has maintained its “buy” call on ISDN Holdings with a raised target price of 50.1 cents, almost double its previous target price of 27.9 cents. 

Analyst William Tng said this was on the back of a surprise profit announcement, which saw the company recording a 72.5% increase y-o-y in its 1H20 earnings to $9.6 million, while revenue grew 13.8% to $167.2 million, from $147.0 million in the same period.

See: ISDN beats expectations with 72.5% growth in 1H earnings to $9.6 mil; share price hits 52-week high

“ISDN’s 1H20F revenue at 56%/55% of our and Bloomberg consensus full-year forecasts was better-than-expected. There was a $20.1 million uplift in revenue due to the progress of the construction of its mini hydropower plant in Indonesia (we were assuming work stoppage due to Covid-19),” says Tng in an Aug 10 report.

ISDN noted that although Covid-19 greatly disrupted the global economy, it has also proven to be a clear catalyst for accelerating digitalisation and the transition to Industry 4.0 automation. 

Tng said the group expects to benefit from this as it delivers a broad and deep set of high-tech precision control systems and remote automation technologies for its customers. 

ISDN is also benefiting from increased demand for its core industrial automation (IA) solutions in Singapore, Malaysia, and Vietnam as the region is currently benefitting from the reconfiguring of global industrial supply chains. The hydropower business continues to progress towards commercialisation, though risks of delays remain. 

In addition, ISDN also entered into a joint venture with ERST Project GmbH in May 2020 to offer environmentally-friendly disinfectant solutions to aid in the fight against Covid-19. ISDN has since secured Centurion Corporation and The Science Park as customers.

Given that ISDN reported a net profit of $1.5 million for 2H19, Tng believes the group is on track for both h-o-h and y-o-y profit growth in 2H20 and FY20 respectively.

Given the better demand outlook and cost reduction efforts, Tng has raised his revenue assumptions and lower cost estimates, leading to 51-80% earnings per share (EPS) increase over FY20-22F. 

Tng adds that he assumes higher construction revenue, although it is subject to recognition risk if there are work stoppages.

“Potential re-rating catalysts for the stock could come from stronger-than-expected sales orders for its mainstay IA and profit contribution from its hydropower segment. Downside risks are order delays, cost overruns in its hydropower business and the Covid-19 outbreak,” he says.

As at 10.20am, shares of ISDN were trading at 37 cents, with a price to book ratio of 1.02 and dividend yield of 2.87%.