SINGAPORE (Aug 20): Teo Cher Koon, managing director and controlling shareholder of motion control parts maker ISDN Holdings, has bought shares from the open market again after nearly two years.
On Aug 13, Teo spent $103,414.29 to buy 468,400 shares from the open market. This follows an earlier purchase of 631,600 shares on Aug 10 for $141,294. That works out to an average of 22.2 cents for both purchases. With these two rounds of transactions, Teo now holds nearly 132.2 million shares, or 33.48% of the company. Teo holds his stake via an entity called Assetraise Holdings, whose other beneficial owner is his wife, Thang Yee Chin.
Based on Singapore Exchange filings, Teo last bought ISDN shares from the open market on Aug 29, 2016. Back then, he paid $41,400 for 230,000 shares. That worked out to an average share price of 18 cents.
Teo’s recent purchases were made just days after ISDN announced a double-digit y-o-y growth for both earnings and top line for the most recent quarter. For 2Q ended June 30, 2018, ISDN reported earnings of $4.9 million, up 62.1% y-o-y. Revenue was up 11% y-o-y to $85.9 million.
The company, which is listed on both the Singapore and Hong Kong stock exchanges, attributes the improved financial performance to growing demand for its precision control systems, especially from medical device manufacturers.
ISDN was able to grow earnings at a faster pace than revenue because of steadily improving margins. The company’s gross profit margin for 2QFY2018 was 26%, while that for 1HFY2018 was 25.7%. For 2Q and 1HFY2017, the corresponding figures were 24.1% and 24.9%, respectively.
ISDN attributes the better margins to “close customer engagement”. The company’s sales team was able to gain better knowledge of what customers want and sell them differentiated products and services at prices they were happy with.
As at June 30, ISDN had a net cash position of $17.2 million, or 4.4 cents a share. As at the same date, its net asset value was 41.41 cents a share, up from 38.48 cents as at Dec 31, 2017. Despite the improvement in earnings, ISDN shares have barely budged this year. It closed on Aug 15 at 22 cents, which implies a forward price-to-earnings ratio of 5.1 times, estimates Tayrona Financial analyst Liu Jinshu, who has a “buy” call and price target of 32 cents on the stock.
In a statement that accompanied the financial results announcement on Aug 8, Teo acknowledged that the escalating global trade war was a cause for concern. However, it is too early to assess how serious the spillover effects might be for ISDN. Over several rounds of tit-for-tat moves, the US and China have been slapping tariffs, or threatening to do so, on billions of dollars’ worth of goods.
Teo is hoping that the company’s strategy of relying on as many different customers as possible instead of just a few will help buffer ISDN in the current market volatility. “The diversity of our customer base has helped us ride out numerous cycles in the past,” he says.
Apart from this, Teo is also confident that ISDN’s motion control and other products are an “integral part” of many different markets and industry segments. Its products are used by customers that are building products or servicing newly growing industries such as automation, robotics and artificial intelligence.
The company acknowledges that competition remains intense within the engineering industry it is in. However, the broader trends are in its favour. China’s economy, for one, is shifting away from the traditional labour-intensive model to one that is more highly automated and requires more sophisticated machinery and equipment. “Over the long term, this ongoing trend is positive for the group’s core motion control and other specialised engineering solutions businesses,” states ISDN.
