KGI Securities has initiated coverage on ISDN holdings with an “outperform” recommendation and a target price of 42 cents.

Analyst Kenny Tan said in an Aug 6 report, that ISDN should see tailwinds as the robotics industry is expected to grow at a compounded annual growth rate (CAGR) of about 12%, catalysed by improvements of robot labour over manual labour and COVID-19 serving as a catalyst for automation. 

He noted that while the 12% prediction was made before the Covid-19 pandemic, recent data has reflected that production is largely back on track.

Furthermore, Tan said recent production figures indicate a possible rebound in complementary businesses, as well as good production from China. He expects 2020 to be a good year for industrial automation, after a “lukewarm” 2019.

Most notably, ISDN has also announced a profit surprise in late July, creating substantial investor attention this week, prior to 1H20 earnings. The announcement told investors that 1H20 results will have a substantial y-o-y profit beat. Given that 1H19 was substantially better than 2H19 results, he thinks continued momentum of the strong 1H20 results into 2H20 will lead to new highs in ISDN’s performance.

However, Tan said his valuations are “fairly conservative”, given the profit surprise is at least 64% of estimated FY20F profit, and sees further upside should ISDN be able to replicate 1H20’s performance.

At 2.25pm, shares of ISDN were trading flat at 36 cents, with a price-to-book ratio of 0.96 and dividend yield of 1.9%