ISDN Holdings

[sgpunter]

Starting a new thread here as I did not find anything on ISDN Holdings so far.

http://www.nracapital.com/research/sgxre...1503z5sbuc

http://infopub.sgx.com/FileOpen/ISDN-Sli...eID=340229

Read a very recent report on ISDN with target price of $0.29 and saw some analyst briefing slides and did some of my own basic research on the stock.

Pricing wise, I got attracted by it as I noticed that it has been beaten till its really blue and black and I am always attracted by these unloved "dogs".

Dividend wise, good thing is that it has paid out dividends for the last 9 out of 10 years although the yield cannot be considered attractive at 1.95% now. Certainly not one for dividend stock lovers.

After the severe beating, it is currently trading at a pretty steep discount to asset value of $0.316. Company has a healthy balance sheet with net cash of $23.8m or $0.067 per share. Pretty attractive in my view and its core business has been generating pretty decent cash flow over the years.

Insider buying is positive as between 14 May 2014 to 9 June 2014, ISDN's Managing Director bought a total of 1,682,000 at prices between $0.393 - $0.415. I guess he is sitting on quite a big paper loss now

Adding to the above, the company was also buying back shares aggressively late last year at prices of around $0.24 - $0.25.

PE Ratio is an undemanding 10x now and clearly, the catalyst for its share price is dependent on how it executes its pipeline of energy projects in Indonesia and Myanmar.

In my opinion, I think the current beaten down share price has already factored in a complete disaster which I feel is a bit too harsh considering it has teamed up with China Huadian in China and managed to secure investments of US$6.4m from investor Robert Alexander Stone and US$8m from listed co. See Hup Seng Ltd (now known as SHS Holdings).

Whilst I do not have a crystal ball to predict how well ISDN's energy projects will pan out (contributions supposed to kick in 2HFY16), I do think that with the core business providing steady income coupled with its beaten down share price, the risk-reward ratio is rather attractive in my opinion now as I feel downside is pretty much limited.

[vesfreq]

Starting a new thread here as I did not find anything on ISDN Holdings so far.

http://www.nracapital.com/research/sgxre...1503z5sbuc

http://infopub.sgx.com/FileOpen/ISDN-Sli...eID=340229

Read a very recent report on ISDN with target price of $0.29 and saw some analyst briefing slides and did some of my own basic research on the stock.

Pricing wise, I got attracted by it as I noticed that it has been beaten till its really blue and black and I am always attracted by these unloved "dogs".

Dividend wise, good thing is that it has paid out dividends for the last 9 out of 10 years although the yield cannot be considered attractive at 1.95% now. Certainly not one for dividend stock lovers.

After the severe beating, it is currently trading at a pretty steep discount to asset value of $0.316. Company has a healthy balance sheet with net cash of $23.8m or $0.067 per share. Pretty attractive in my view and its core business has been generating pretty decent cash flow over the years.

Insider buying is positive as between 14 May 2014 to 9 June 2014, ISDN's Managing Director bought a total of 1,682,000 at prices between $0.393 - $0.415. I guess he is sitting on quite a big paper loss now

Adding to the above, the company was also buying back shares aggressively late last year at prices of around $0.24 - $0.25.

PE Ratio is an undemanding 10x now and clearly, the catalyst for its share price is dependent on how it executes its pipeline of energy projects in Indonesia and Myanmar.

In my opinion, I think the current beaten down share price has already factored in a complete disaster which I feel is a bit too harsh considering it has teamed up with China Huadian in China and managed to secure investments of US$6.4m from investor Robert Alexander Stone and US$8m from listed co. See Hup Seng Ltd (now known as SHS Holdings).

Whilst I do not have a crystal ball to predict how well ISDN's energy projects will pan out (contributions supposed to kick in 2HFY16), I do think that with the core business providing steady income coupled with its beaten down share price, the risk-reward ratio is rather attractive in my opinion now as I feel downside is pretty much limited.

It is interesting. But, what I'm rather concerned about is the earnings visibility. Project pipeline is one thing, but execution is quite another.

The list of items I'm quite curious over are:
1. Any potential risk with collections?
2. Any execution risk?
3. Any pricing power? The presentation does paint a nice pic over the gross margins from supplying power, but does ISDN have the ability to set their prices? Assuming that there is some extent of inflation (say 5%), that means they should have some discretion to adjust prices from year to year. Within poorer states, it may be challenging to up rates, when cost of living is presumably getting more ex.
4. The hydro power stations are located abroad which brings in fx risk. If margins are not wide enough to cover fx risk, it can be damaging esp with adverse fx movements.

The main downside to me is execution and ensuring timely collections which is worrying since its in Indonesia and there is some extent of risk of social unrest.

Perhaps, it has more interesting long range profits and than short range.

My 2 cents of opinion.

[SLC81]

This company had net cash of around 6 cents. Earning is also trending up. (Vested)

[Rr_1]

No one interested in this stock recently? It's been trading at around 0.200 since falling to as low as 0.175 from 0.27 due to a sell-off from a substantial shareholder after the Hong Kong dual listing (also to note that the company issued 40,000,000 new shares for the dual listing). While most shares, good or bad, has rallied since Jan, ISDN has hit new lows and is starting to consolidate. With a rising earning's trend and 0.38 NAV, this is one of the few value stocks left in the market that is going unnoticed. Possible risks include it's high trade receivables and its high china exposure.

Here's NRA capital's research:

http://www.nracapital.com/research/sgxre...1703k3t5e7

A detailed writeup from some young investors:

http://investmentblocks.blogspot.sg/2017...ation.html

Ray

[karlmarx]

From the latest quarterly, ISDN has a very large trade receivables of $93m, which is 138% of the quarter's revenue.

http://infopub.sgx.com/FileOpen/ISDN-Ann...eID=453934

Information from the latest Annual Report shows that about $60m out of the $86m trade receivables then was due from 'third party,' or customers. So its receivables from customers is about a quarter's worth or revenue. Its ageing analysis show the amount that is past due (after 3 or 6 months, which is the credit it extends to clients) is $17m. It has been slow in collecting payment. Cashflow statement from the latest quarterly confirms this trend. Not a major red flag, something to be wary of.

Receivables from notes amounted to about $9m, this should be rather safe. The rest of the items such as funding to investee company ($4.4m), sundry debtors (3.7m) and advances to suppliers ($2.7m) while questionable, probably doesn't warrant a red flag. But whether they can be collected is concern.

Its income has been stable over the past 5 years, in the range of $6m to $8m. The level of debts appear manageable. At current market prices, the company is worth some $90m. Given the credit risk of some of its receivables, how much will you discount the worth of the company, if at all?

http://infopub.sgx.com/FileOpen/ISDN-AR2...eID=444614

[Squirrel]

Just revisiting this before the next quarter's results come in.

Firstly some coverage from UOB Kay Hian

http://research.sginvestors.io/2017/07/i...07-26.html

Next up is the first quarter announcements and what it entails As posted by karlmarx.

http://infopub.sgx.com/FileOpen/ISDN-Ann...eID=453934

What was not mentioned in his post is that, by 30 April, 27.5% of the receivables outstanding since 31 March has been collected. This totals $19.5m within a month and is in much higher than the touted 88 days average receivables turnover rate. this should materially reduce o/s trade receivables and boost cash holdings.

Some Ratios and figures from the Financial statement not taking into account the collected receivables mentioned above.

Last Traded : 26.5cents
Cash per Share: 8.5cents
NCaV per share: 23.7 cents

From the collection of receivables it seems like the cash position is likely to be significantly boosted. The NCAV feels like a good value cushion for this stock.

Value Stock with a Growth Factor?

Typically, investors belong to either camp of going for value stocks that's selling at 50 cents to a dollar of intrinsic value, or going for growth stocks with sexy stories. Is ISDN a possible hybrid of the two?

It's trading below NAV still and probably qualifies as a value stock (though not deeply discounted). The growth story here is in automation. The motion controls business stands for 71% of the business. With a backdrop of rising wages in PRC and threat of AI to conventional jobs, it's not surprising that factories in China are going all out in automating their processes. Being the fourth largest in PRC based on sales revenue for motion control solutions, ISDN is geared to take advantage of this multi year mega trend.

Some articles of interest

in the UOB Kay Hian report, they state that Foxconn is a major customer of ISDN. Not sure how they got this piece information (perhaps from a site visit?), assuming that's the truth, there are several articles that would be of interest as follows.

---

https://www.yahoo.com/news/trumps-big-fo...40523.html

https://www.cnbc.com/2016/05/22/rise-of-...gence.html

---

Will the push by Foxconn into automation well into 2020 benefit ISDN? Does it make sense for them to go into US markets as a manufacturer logical given the prevailing wage rates? Other than a highly automated factory, would there be other ways to combat costly labor? Will the $10bn plant indirectly benefit ISDN? How about the rumored second and third plants?

Foxconn is but an example of what is happening to manufacturing in China. In order for the rest to survive, they must do similar.

Would ISDN be poised to ride this wave?

[Squirrel]

ISDN has announced results for the quarter

http://infopub.sgx.com/FileOpen/ISDN-Ann...eID=467119

Here's the headlines

http://infopub.sgx.com/FileOpen/ISDN-PR-...eID=467122

- Revenue is up 29.4% Y-O-Y
- Net profit attributable to shareholders is up 242.8%!

Looking at the half year mark, if we were to exclude the $1.1m related to listing expense in Q1 (assuming fully borne by equity holders of the company), the total profit attributable to shareholders of the company is actually $5.831m, which translates to $0.01477 cents a share, that would mean the company is trading at roughly 8.5 P/E based on projected FY2017. Is that how much an investor should pay for this company?

Buttressed by a NAV of 33.4 cents per share (attributable to owners of the company), this seem like a counter with a good valuation cushion and primed to ride the next wave of automation/"intelligent manufacturing".

[Squirrel]

ISDN has taken a further step in its solar ambitions by forming a JV  (30% held by ISDN) to set up and operate a 1MW distributed generation solar power station on the roof of their industrial park in Suzhou.

"The  PRC  subsidiary is  expected  to set  up  and  operate  a  distributed generation solar power station with an estimated scale of approximately 1 Megawatt on the roof  of our industrial  park  in Suzhou,  the PRC. Upon the  commencement  of  operation  of such distributed  generation  solar  power  station, the subsidiaries  in  our  industrial  park will purchase generated power from the power station at the then relevant fair market price for a term  of 20  years.  The total  investment amount  to  the  JV  Holdco and  its  subsidiaries would be no more than RMB8 million. Upon the incorporation, the JV HoldCo and its subsidiaries will become an associate of the ISDN Group."

http://infopub.sgx.com/FileOpen/ISDN-Pre...eID=467437

Comtec is a listed company on HKEX that manufactures solar wafers which just expanded into downstream setup and installation of Solar via acquiring Joy Boy in Jul 2016. They are aiming to achieve synergy by integrating upstream and downstream businesses.

Taking a hypothetical look at how such a station would fare.

Assuming
- An average capacity factor of 20% (https://en.wikipedia.org/wiki/Capacity_f...er_station)
- Average of 0.8 RMB per KWh as per 苏州市物价局 (http://www.szwjj.suzhou.gov.cn/web/WebIn...goryId=346)
- Ability to store/sell back to grid for weekends

Revenue per year = 365 * 24 * 1MW * 20% * 0.8RMB/1000 = 1,401,600 RMB

Not sure of the maintenance and operating costs associated with a solar power station.

Given that this is a small scale project, and ISDN only holds 30% of the company, this shouldn't be material to the company, but nonetheless is a step forward in diversifying their revenue stream.

[Rr_1]

The smallish solar JV project with Comtech has probably have to do with feeling the other party out in regards to synergy from working together. I would imagine that larger projects will come in due time if their JV works out with no problems.

The recent financials were very reassuring (to me at least) in respect to their growth. Having thought about its smart manufacturing business for awhile, I have come to believe that the trend of automation in factories will continue and demand will not diminish significantly (75%>) even in challenging macros.

[CY09]

Hi Winston78,

The sharing of posts purely on price movements and technical is not advised on valuebuddies. Our forum is oriented towards the discussion of fundamentals.