CFA Society Singapore
SINGAPORE (Aug 13): Tayrona Financial, formerly known as NRA Capital, is keeping its “overweight” call on ISDN Holdings with an unchanged fair value estimate of 32 cents, translating to an upside of close to 49% from its current trading price.
This comes after the precision motion control and integrated engineering solutions provider reported a 62.1% rise in earnings to $4.9 million for the 2Q18 ended June, compared to $3.0 million a year ago.
2Q18 revenue grew 11.0% to $85.9 million, from $77.4 million a year ago.
This was on the back of sustained growth at its core motion control solutions segment, driven by growing demand for high-tech precision control systems from medical device manufacturers especially in Hong Kong and China.
“We remain bullish on ISDN and see limited downside even if earnings growth were to slow in subsequent quarters. Hence, we maintain our overweight rating with a high-average return and low risk view,” says analyst Liu Jinshu in a Monday report.
The way Liu sees it, ISDN’s downside is further limited by the group’s net cash position of $17.2 million, or 4.4 cents per share.
On the back of ISDN’s strong performance in the first half of 2018, Tayrona has revised its forecasts upwards to expect full-year earnings of $17.3 million, which translates to earnings per share (EPS) of 4.4 cents.
“Growing adoption of robotic surgery systems have led to positive demand for ISDN’s products,” says Liu. “The group is targeting industries such as medical devices, environmental protection, artificial intelligence and electric vehicles for growth opportunities. Capex growth in these industries should provide opportunities for ISDN.”
However, the analyst notes that ISDN has warned that the business climate is starting to show signs of caution, with the semiconductor and electronic sectors appearing to be facing some headwinds following 18 months of growth.
“The semiconductor and electronic sectors only account for a portion of the group’s business and that it has built strong presences in other industries such as infrastructure and medical devices in recent years,” says Liu. “The group’s performance in 3Q18 will give us more visibility to fine-tune forecasts.”
As at 11.34am, shares in ISDN are trading flat at 21.5 cents, implying an estimated price-to-earnings ratio of 5.1 times and a dividend yield of 3.9% for FY18.