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 [email protected] [[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% |
