CGS International April 21, 2025 ISDN Holdings Ltd: Downgrade Amid Trade War Concerns Key Takeaways from the Value Up Conference ISDN Holdings Ltd. participated in the Value Up Conference in Singapore last Wednesday. [[1]] Management is optimistic about the industrial automation business, particularly in Malaysia and Taiwan. [[1]] Further investments are planned for mini-hydro power plants in Indonesia, with two plants under construction. [[1]] Management acknowledges potential risks from the US-China trade war. [[1]] A downgrade to Reduce is recommended, anticipating a mean reversion in valuation due to trade uncertainties. [[1]] US-China Trade War: A Downside Risk to Earnings The ongoing US-China trade war could significantly affect ISDN’s earnings outlook for FY25-27F. [[1]] As of end-December 2024, ISDN’s revenue breakdown by customer location is: 69% from China 9% from Singapore 5% from Vietnam 3% from Malaysia [[1]] No single customer accounts for more than 10% of ISDN’s FY24 revenue. [[2]] The company has minimal direct export sales into the US and negligible imports from the US into China. [[2]] Two-Pronged Growth Strategy ISDN is focusing on its core industrial automation business in Southeast Asia. [[2]] Expansion into Malaysia and Taiwan aims to capture growth from the global supply chain reorganization. [[2]] Construction of the fourth and fifth mini-hydropower plants in Indonesia is underway, expected to be completed by 2026. [[2]] These plants will add 20 MW to the total hydropower capacity, reaching 44.6 MW, with a projected recurring tariff income of S\$25m annually. [[2]] Downgrade to Reduce: Anticipating Mean Reversion ISDN does not provide quarterly business updates; the next update is expected in August 2025 with 1H25 results. [[3]] Downgraded to Reduce with a lower target price of S\$0.28 due to uncertainties from the US-China trade war. [[3]] Valuation could de-rate to 8.8x FY26F P/E, the average P/E of its previous earnings upcycle (FY16-21). [[3]] Previous valuation was at 12.4x FY26 P/E, above the historical average, reflecting a more optimistic EPS outlook before trade war escalations. [[3]] Potential Catalysts and Risks Re-rating Catalysts: Higher-than-expected net profit from the hydropower business segment. [[3]] Faster economic growth in China due to re-stimulation efforts. [[3]] Downside Risks: Weak customer demand due to a slowing global economy. [[3]] Possibility of bad debts amid worsening economic conditions. [[3]] Investment Summary Rating: REDUCE (previously ADD) [[4]] Consensus Ratings: Buy 1, Hold 0, Sell 0 [[4]] Current Price: S\$0.31 [[4]] Target Price: S\$0.28 [[4]] Previous Target: S\$0.40 [[4]] Up/Downside: -9.7% [[4]] CGSI / Consensus TP: -30.0% [[4]] Reuters: ISDN.SI [[4]] Bloomberg: ISDN SP [[4]] Market Cap: US\$106.0m, S\$139.1m [[4]] Average Daily Turnover: US\$0.26m, S\$0.35m [[4]] Current Shares O/S: 441.5m [[4]] Free Float: 54.2% [[4]] Key Financials Financial Summary (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Revenue 341.8 372.4 384.1 402.1 421.0 Net Profit 4.95 8.52 12.31 14.49 16.81 Core EPS (S\$) 0.011 0.019 0.027 0.032 0.037 Core EPS Growth (66.7%) 71.1% 44.5% 17.7% 16.0% FD Core P/E (x) 27.69 16.27 11.30 9.60 8.27 Price To Sales (x) 0.40 0.37 0.36 0.35 0.33 DPS (S\$) 0.003 0.047 0.007 0.008 0.009 Shareholder Structure Teo Cher Koon: 32.2% [[4]] NTCP SPV VI: 8.6% [[4]] Analyst Contact William TNG, CFA [[4]] T (65) 6210 8676 [[4]] E william.tng@cgsi.com [[4]] Peer Comparison Company Ticker Recom. Price (lcl curr) Target Price (lcl curr) Market Cap (US\$ m) P/E (x) CY25F P/E (x) CY26F 3-year EPS CAGR (%) ROE (%) CY25F ROE (%) CY26F Dividend Yield (%) CY25F Aztech Global Ltd AZTECH SP Reduce 0.56 0.41 327 20.7 11.3 -15.5% 1.21 1.13 1.5% Frencken Group Ltd FRKN SP Add 0.96 1.40 311 9.6 9.1 8.5% 0.87 0.82 3.1% ISDN Holdings Ltd ISDN SP Reduce 0.31 0.28 106 11.3 9.6 26.0% 0.64 0.61 2.2% Venture Corporation VMS SP Hold 10.91 10.13 2,393 14.3 13.0 0.8% 1.09 1.08 6.9% ESG Highlights ISDN focuses on motion control and integrated precision engineering services. [[3]] Involved in mini-hydropower projects in Indonesia. [[3]] Aims to drive efficiency and reduce environmental impact through industrial automation. [[3]] ESG: Key Implications Mini-hydropower plant project in Indonesia helps offset carbon emissions and mitigate climate change. [[3]] These plants target remote and rural areas, generating clean energy and job opportunities. [[3]] As of 28 Mar 2025, ISDN operates 3 mini-hydropower plants in Indonesia and plans to expand this business. [[3]] Workforce and Risk Management Employs 1,283 employees in over 78 locations across Asia-Pacific at end-FY24. [[3]] Has an established whistle-blowing policy with direct access to superiors and top management. [[3]] Large number of subsidiaries in various geographies could pose operational risks. [[3]] Trends and Employee Welfare Rising wage costs and competition for talent are key trends. [[3]] ISDN provides equal opportunities and does not discriminate. [[3]] Offers benefits such as severance pay, medical insurance, and performance-based bonuses. [[3]] Provides allowances for travel, mobile phones, and meals based on job duties. [[3]] P/BV vs ROE Rolling P/BV (x) (lhs) and ROE (rhs) data presented from Jan-21A to Jan-26F [[4]] 12-mth Fwd FD Core P/E vs FD Core EPS Growth 12-mth Fwd Rolling FD Core P/E (x) (lhs) and FD Core EPS Growth (rhs) data from Jan-21A to Jan-26F [[4]] Profit & Loss (S\$m) (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Total Net Revenues 341.8 372.4 384.1 402.1 421.0 Gross Profit 96.7 101.5 108.7 113.5 118.8 Operating EBITDA 24.7 28.1 33.4 36.3 39.8 Depreciation And Amortisation (5.6) (6.6) (6.9) (6.9) (7.3) Operating EBIT 19.1 21.5 26.5 29.4 32.5 Financial Income/(Expense) (4.1) (5.1) (5.1) (5.1) (5.1) Pretax Income/(Loss) from Assoc. (0.7) (0.6) 0.5 0.5 0.5 Non-Operating Income/(Expense) 4.5 3.9 2.0 2.0 2.0 Profit Before Tax (pre-EI) 18.9 19.7 23.9 26.8 29.9 Pre-tax Profit 18.9 19.7 23.9 26.8 29.9 Taxation (7.7) (5.7) (6.1) (6.9) (7.7) Profit After Tax 11.2 14.0 17.8 19.9 22.3 Minority Interests (6.2) (5.4) (5.4) (5.4) (5.4) Net Profit 5.0 8.5 12.3 14.5 16.8 Cash Flow (S\$m) (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F EBITDA 24.75 28.10 33.38 36.31 39.77 Change In Working Capital (46.62) 8.03 27.17 (3.83) (4.04) Other Operating Cashflow 11.75 (6.73) 1.70 1.70 1.70 Net Interest (Paid)/Received (4.05) (5.14) (5.10) (5.10) (5.10) Tax Paid (9.97) (5.88) (6.11) (6.86) (7.66) Cashflow From Operations (24.15) 18.38 51.05 22.22 24.67 Capex (4.36) (7.52) (5.00) (5.00) (5.00) Other Investing Cashflow 0.35 0.58 0.00 0.00 0.00 Cash Flow From Investing (4.02) (6.94) (5.00) (5.00) (5.00) Debt Raised/(repaid) 39.29 (8.46) 0.00 0.00 0.00 Dividends Paid (8.09) (6.24) (3.08) (3.62) (4.20) Other Financing Cashflow 1.63 0.66 0.00 0.00 0.00 Cash Flow From Financing 32.83 (14.05) (3.08) (3.62) (4.20) Total Cash Generated 4.67 (2.61) 42.97 13.60 15.47 Free Cashflow To Equity 11.13 2.98 46.05 17.22 19.67 Free Cashflow To Firm (23.77) 16.91 51.45 22.62 25.07 Balance Sheet (S\$m) (S\$m) Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Total Cash And Equivalents 60.0 56.5 99.5 113.1 128.6 Total Debtors 110.6 122.4 109.4 114.6 119.9 Inventories 73.0 67.4 70.4 73.7 77.1 Total Current Assets 243.6 246.4 279.3 301.3 325.6 Fixed Assets 63.2 65.8 63.8 61.9 59.7 Total Investments 5.3 6.7 7.2 7.7 8.2 Intangible Assets 12.2 12.9 12.9 12.9 12.9 Total Other Non-Current Assets 75.9 84.1 84.1 84.1 84.1 Total Non-current Assets 156.5 169.5 168.1 166.7 164.9 Short-term Debt 19.7 21.2 21.2 21.2 21.2 Total Creditors 64.6 74.7 91.6 95.8 100.3 Other Current Liabilities 13.9 17.2 17.2 17.2 17.2 Total Current Liabilities 98.1 113.2 130.0 134.3 138.8 Total Long-term Debt 56.0 48.9 48.9 48.9 48.9 Total Other Non-Current Liabilities 5.6 6.6 6.6 6.6 6.6 Total Non-current Liabilities 61.6 55.5 55.5 55.5 55.5 Total Liabilities 159.8 168.7 185.5 189.8 194.3 Shareholders’ Equity 198.6 206.7 216.0 226.8 239.4 Minority Interests 42.0 40.5 45.9 51.4 56.8 Total Equity 240.7 247.2 261.9 278.2 296.3 Key Ratios Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Revenue Growth (7.82%) 8.98% 3.13% 4.68% 4.69% Operating EBITDA Growth (30.8%) 13.5% 18.8% 8.8% 9.5% Operating EBITDA Margin 7.24% 7.54% 8.69% 9.03% 9.45% Net Cash Per Share (S\$) (0.04) (0.03) 0.07 0.10 0.13 BVPS (S\$) 0.45 0.46 0.48 0.51 0.53 Gross Interest Cover 4.36 3.93 4.90 5.44 6.02 Effective Tax Rate 40.8% 28.9% 25.6% 25.6% 25.6% Net Dividend Payout Ratio 5.7% 55.2% 5.6% 5.6% 5.6% Accounts Receivables Days 113.1 114.5 110.2 101.7 101.7 Inventory Days 114.8 94.8 91.3 91.1 91.1 Accounts Payables Days 119.0 94.1 110.2 118.5 118.5 ROIC (%) 8.7% 8.4% 10.2% 12.7% 13.9% ROCE (%) 6.57% 6.89% 8.24% 8.73% 9.18% Return On Average Assets 3.80% 4.68% 5.29% 5.47% 5.71% Key Drivers Dec-23A Dec-24A Dec-25F Dec-26F Dec-27F Motion control rev growth (%) -6.6% 2.1% 3.0% 5.0% 5.0% Gross profit margin (%) 26.7% 25.5% 26.5% 26.5% 26.5%
