Brokers’ take: CGS-CIMB upgrades ISDN back to ‘add’ on brighter prospects
Michelle Zhu
AFTER downgrading ISDN Holdings to “hold” in November 2022, CGS-CIMB reverted its call to “add” as it believes the engineering solutions provider will benefit from improvements in both earnings and its operational environment going forward.
The move follows ISDN ‘s announcement on Jan 3 that it achieved commercial operation date (COD) for its first of three mini hydropower plants, with “meaningful contributions” from the plant, Lau Biang 1, to kick in from FY2023.
The group has a portfolio of three mini hydropower plants in North Sumatra, Indonesia, including Lau Biang 1. The other two plants, Anggoci and Sisira, were commissioned in September 2021 but faced delays in obtaining CODs due to regulatory changes.
In a report on Wednesday (Jan 4), CGS-CIMB analysts said that these two plants could achieve COD within H1 of FY2023.
“Pending updates from ISDN through a planned investor briefing as publicly announced by the company, we interpret meaningful contribution to mean 5-10 per cent of net profit and assume that Lau Biang 1 could add an incremental 10 per cent to our FY2023-24 net profit forecasts,” they said.
The brokerage has projected ISDN to rake in net profit of S$24 million for FY2023, and S$27.1 million for FY2024. Earnings per share forecasts for this period have consequently been raised by 11.1 per cent to result in a higher price target of S$0.55 from S$0.485 previously.
The higher target reflects a higher 8.9 times price-to-earnings multiple based on the stock’s historical five-year average, compared to the previous multiple of 8.6 times.
CGS-CIMB further expects sequential operational improvement for ISDN starting from Q2 of FY2023 as Covid-19 disruptions are expected to tail off in China, where the group derives the bulk of its revenue from external customers.
With China shifting its focus to the economy as well as quarantine and movement control measures to be largely lifted by Jan 8 this year, the brokerage said business activities should correspondingly pick up for ISDN.
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