ISDN Holdings

[dreamybear]

The recent happenings in NT / Procurri led me to ponder about NT / ISDN, and subsequently led me to watching the video on partnering with NT(at the website).

With regards to ISDN, while NT has certainly made a difference(e.g. optimizing the company structure), I think realistically there is a limit to ISDN's automation growth prospects since it seems unlikely to be able to grow organically to compete with the likes of US/European/Jap/Korean giants. It seems to be "contented" to focus on China and SE Asia(I think it's a 4-6 hr geographical flight zone or something like that). 

Despite venturing into more offerings, they don't seem to take off and to me, there seems to be a lack of focus(look at the no. of pages of subsidiaries in the AR - how effectively cld one oversee so many or is it with layers of middle mgmt - I dun know) Speaking of which, I was rather disappointed with the outcome of the SD Beijing incident - tot wld be recoverable and increase EPS - pg196 of AR2021)

So how long more is the runway in China ? What wld be the peak earnings / EPS for its automation business ? 

Then in the longer term, what is the endgame ? Controlling shareholder selling ISDN to a larger organization - given ISDN is a solutions provider collaborating with various manufacturers, does it make business sense for a single manufacturer to buy it ? Finding a successor ? What wld be a trigger / final trigger for NT to exit its stake in ISDN (esp since NT is not in the driving seat )?

Meanwhile, CIMB has lowered the target price to $0.70 upon 1Q2022 results below expectations.

This thread is also a bit quiet, hope more buddies can join in the discussion. 

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https://www.novotellus.com/

AR2021 :
https://links.sgx.com/FileOpen/ISDN-AR20...eID=708509

1Q2022 Results :
https://links.sgx.com/FileOpen/ISDN-1Q20...eID=720460
"- ISDN reported revenue of S$94.7 million in 1Q2022, a 3.8% decrease from S$98.4 million in 1Q2021.
- Profit attributable to equity holders increased 5.8% to reach S$6.4 million in 1Q2022, as compared to S$6.1 million in 1Q2021...."

CIMB ISDN research report 14/6/2022
https://rfs.cgs-cimb.com/api/download?fi...467bf32f58

[leeeta]

The recent happenings in NT / Procurri led me to ponder about NT / ISDN, and subsequently led me to watching the video on partnering with NT(at the website).

With regards to ISDN, while NT has certainly made a difference(e.g. optimizing the company structure), I think realistically there is a limit to ISDN's automation growth prospects since it seems unlikely to be able to grow organically to compete with the likes of US/European/Jap/Korean giants. It seems to be "contented" to focus on China and SE Asia(I think it's a 4-6 hr geographical flight zone or something like that). 

Despite venturing into more offerings, they don't seem to take off and to me, there seems to be a lack of focus(look at the no. of pages of subsidiaries in the AR - how effectively cld one oversee so many or is it with layers of middle mgmt - I dun know) Speaking of which, I was rather disappointed with the outcome of the SD Beijing incident - tot wld be recoverable and increase EPS - pg196 of AR2021)

So how long more is the runway in China ? What wld be the peak earnings / EPS for its automation business ? 

Then in the longer term, what is the endgame ? Controlling shareholder selling ISDN to a larger organization - given ISDN is a solutions provider collaborating with various manufacturers, does it make business sense for a single manufacturer to buy it ? Finding a successor ? What wld be a trigger / final trigger for NT to exit its stake in ISDN (esp since NT is not in the driving seat )?

Meanwhile, CIMB has lowered the target price to $0.70 upon 1Q2022 results below expectations.

This thread is also a bit quiet, hope more buddies can join in the discussion. 

---------------------------

https://www.novotellus.com/

AR2021 :
https://links.sgx.com/FileOpen/ISDN-AR20...eID=708509

1Q2022 Results :
https://links.sgx.com/FileOpen/ISDN-1Q20...eID=720460
"- ISDN reported revenue of S$94.7 million in 1Q2022, a 3.8% decrease from S$98.4 million in 1Q2021.
- Profit attributable to equity holders increased 5.8% to reach S$6.4 million in 1Q2022, as compared to S$6.1 million in 1Q2021...."

CIMB ISDN research report 14/6/2022
https://rfs.cgs-cimb.com/api/download?fi...467bf32f58

If you dig deeper, you will know that tech and semicon companies were affected by the on-going supply chain disruptions all over the world. ISDN is not the only company affected. Last I heard, the situation has eased. Lockdown is another culprit. Hopefully by Q3, we will see normalization of business. Order book is still strong as reported. The CN office growth and expansion plans were disrupted as well..but are still on track. 

ISDN's growth is tied to growth in Asia..which is doing/should do better than US and Europe. Besides hardware, motors and high tech devices, ISDN is going huge into software. Their  China software development team will be rolling out cloud based smartfactory and IOT solutions by end of the year. There is a huge ready market in China. The profit margin from this business is in the dd and recurring. The software aspect of the business offers customers in China end-to-end solutions from front-end devices to the cloud. ISDN will continue to market AVEVA solutions in Singapore and the rest of Asia but will promote its own developed solutions to customers in China. 

The disruptions mentioned above are a minor hiccup. Long-term growth is still intact. Completed hydro plants will commence operation soon and new ones are scheduled to start construction this year. Within the next 3 to 4 years, all 160Mwatts are expected to complete construction and be spun off.

[Squirrel]

Finally, commercialization of one of its hydropower plants. That should bring on significant cashflow after many years of investment. Hopefully they have found the way to make this work at a faster pace.

https://links.sgx.com/FileOpen/eISDN-Ann...eID=743092

[dreamybear]

Finally, commercialization of one of its hydropower plants. That should bring on significant cashflow after many years of investment. Hopefully they have found the way to make this work at a faster pace.

https://links.sgx.com/FileOpen/eISDN-Ann...eID=743092

CIMB has released an updated research report regarding this new development.

I am puzzled why is a net cash company with good prospects (riding on the automation trend) trading at only a circa 9x P/E for the past few years.

I am inclined to think that one of the main reasons could be the hydro plants, in which the company has invested a sizeable amt : $77m as of 31 Dec 2020*. In my view, ISDN could be trading at a higher multiple if it is a pure automation play.

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CIMB report
https://rfs.cgs-cimb.com/api/download?fi...6bd47aafbe
".... we interpret meaningful contribution to mean 5- 10% of net profit and assume that Lau Biang 1 could add an incremental 10% to our FY23-24F net profit forecasts. Hence, our FY23-24F EPS forecasts are raised by 11.1%. Rolling over to FY24F (previously FY23F), our TP increases to S$0.55 based on 8.9x (5- year average P/E multiple). Previously the 5-year average P/E multiple was 8.6x....."

*AGM2021 Q&A
https://links.sgx.com/FileOpen/ISDN-Ann-...eID=664142

[dreamybear]

I think this is exemplary ; hope more listed companies follow the example to facilitate more and deeper engagement with the investment community, especially the minority shareholders.

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ISDN TO HOST AN ONLINE INVESTOR BRIEFING ON 13 JANUARY 2023 (FRIDAY), AT 11:00AM SGT (emphasis added)
https://links.sgx.com/FileOpen/eISDN-Ann...eID=743866
"The Board of Directors (the “Board”) of ISDN Holdings Limited (the “Company”, and together with its subsidiaries, the “Group”) wishes to announce that the Group will be hosting an online investor briefing on 13 January 2023 (Friday), at 11:00AM SGT.

Further to our announcement dated 3 January 2023, the briefing will provide a forum for the Group to provide an update on the positive commercialisation of its first mini hydropower plant as well as the business outlook going forward, through a presentation and Q&A session with our shareholders.

The investor briefing will be conducted via Zoom. Shareholders who wish to attend are advised to register for the briefing by sending their RSVP, along with their contact information, to the following email address: shivam@financialpr.com.sg."

[cedricyang]

For anyone who knows accounting and is a seasoned investor, you can see the positives from this FY.
 
EPS fell 42.6% ON FACE VALUE, but one needs to look at the reasons for the fall.
 
1 [CASH ITEM]  Is it because of revenue dropped by 42.6%? That will be a big concern, meaning demand for ISDN' s products have dropped significantly. No, instead revenue dropped by 15.8%, roughly equivalent to general market slowdown experienced in China due to its lock down and supply chain problems.
2 [CASH ITEM] Is it because of inreased in operating expenses? That will be a big concern as we need to dig into why expenses increase with reduction of revenue. No, instead admin and distribution expenses (2 main big business exp) both dropped year on year by 7.6% and 4.4% respectively.
 
So why EPS fall? 3 Reasons.
 
1 [CASH ITEM] In FY 2021, there was an one-off cash transaction from the sales of property circa $2.2m. This cannot be put into consideration when studying the business of the company because property transactions are not part of ISDN' s business operations.
2 [NON CASH ITEM] In FY 2021, there was an unrealised FX gain of circa $2m. Again this cannot be put into consideration when studying the business of the company because foreign exchanges are not part of ISDN' s business operations. However, it is an important cashflow parameter of any international company, needing to manage its FX well. I will further elaborate on this below.
3 [NON CASH ITEM] In FY 2022, there was an unrealised FX loss of circa $4.8m. One year fluctuation from FX unrealised gain of $2m to unrealised loss of $4.8m should gives investors the insights that 1) FX is volatile 2) FY 2022 is an extraordinary year with high interest rates, thereby unusually strengthening USD and SGD. In business, the way to manage FX risks is to not be FORCED to realised the losses. Theoretically, the way businesses manage such risks is to have strong international cash reserves (ISDN combined cash reserves stands at circa $56.5m) and good credit so the company could pay off its liabilities (payables, loans etc) via a stronger currency instead of the weaker ones (such as RMB and RUP in this case). In the PR, ISDN mentioned that they have policies in place to manage its exposure to FX risk.
 
Now, should investors worry about the drop in EPS?
Let' s dive in. Discounting the FX gain and Property gain in FY 2021, FY 2021 earnings will be circa $21.3m.
Adding back FX loss in FY 2022, FY 2022 earnings will be circa $19.5m
That means in real, realised terms, ISDN' s earnings dropped from $21.3m to $19.5m, which is a 8.5% decline.
I cannot emphasize this strong enough, 8.5% decline in earnings in REAL terms on a broader 15.8% drop in revenue, inflation, recessionary environment, china lockdown, supply chain problems, global demand slowdown, is very impressive.
 
Although investors are generally short term and the market is filled with emotion infused traders, long term investors should take refuge in the prudency of the company and its longer term automation tailwind in rising China & SEA. Additionally, the commercialisation of LB 1 is bringing in significant earnings to the table, circa $2.9m. Add that with 2 more commercialisation of Anggoci and Sisira which can bring an estimation of $3.5m earnings for the remaining FY 2023, I' m confident of the future prospects of this company.
 
This unrealised FX loss also inadvertantly provided a low base for FY 2023 outperformance. I am confident with China reopening, SEA (especially Vietnam) being China+1, commercialisation of their nacent hydropower plants, and future hydro construction having unpurchasable know-hows, ISDN' s 2023 will be one to look out for.
 
Only investors that stick through with the company and understand its business and future deserves to win with the company.
And I welcome only investors who can provide good insights to this thread. Good insights does not mean you have to agree, but back it up with facts and reasonable arguments.
 
Caveat emptor.

[weijian]

I find it interesting that Mgt has attributed 90% of the YoY decline in FY22 to be coming from "cyclical end industries". Since these are cyclical industries, I would have assumed that FY21 benefitted from the upcycle and if this analysis was replicated in FY21, it would have stated that XX% improvement benefitted from the upcycle.

Group impacted by cyclical end-markets, but reaffirms long-term prospects

ISDN has analysed customer performance closely over the last year to separate structural  changes in its market from cyclical effects. The Group believes over 90% of the revenue  decline in FY2022 over FY2021 was driven by cyclical end-industries: electronics & semiconductors, machine tools, and research equipment. Structural changes in the China  market should favour ISDN for long-term growth
https://links.sgx.com/FileOpen/eISDN-FY2...eID=747771

Looking back at FY21, whave yielded certain words in the PR like:

• Through-cycle growth as Industry 4.0 adoption in Asia increases
  
• COVID-19 has accelerated Industry 4.0 adoption, global semiconductor supercycle in full swing
  

https://links.sgx.com/FileOpen/ISDN-FY20...eID=703946

In a way, Mgt has recognized the benefits of the upcycle. On hindsight, all participants have been overly optimistic that this was a "super cycle". Simply tracing back to the last time ISDN had a earnings downturn and it was pretty recent in FY19. FY19 was also similarly MicroMechanics's last downturn before the latest FY. Both companies prosper and die by the Electronics sword , it seems.

Not too long ago, Benchmark Capital Bill Gurley had a well published warning to their investees that the previous "cycle of easy funding" was not the norm but now is the norm. I wonder would this also similarly apply to what everyone has experienced in terms of economic cycles?

[weijian]

From Jardine Cycle And Carriage, we know that Astra International (Indonesia's alpha dog) has their 1st investment in hydropower in the last year.

ISDN Holdings has dipped their hands into a lot of pies. Sometimes, it doesn't look good. Sometimes it will look brilliant. How will it turn out for their hydropower plants this time?

Indonesian president pledges nickel mining clean up amid EV-led boom

Jokowi visited Vale Indonesia’s mine and smelter, which uses energy from three hydropower plants, to see first hand an investment deal with US carmaker Ford Motor and China’s Zhejiang Huayou Cobalt to build a US$4.5 billion high-pressure acid leaching (HPAL) plant.

Jokowi said he would only approve new smelter permits if powered by renewable energy sources, which he said would raise the cost of new investment and be an entry barrier.

https://www.businesstimes.com.sg/interna...v-led-boom

[dreamybear]

Additionally, the commercialisation of LB 1 is bringing in significant earnings to the table, circa $2.9m. Add that with 2 more commercialisation of Anggoci and Sisira which can bring an estimation of $3.5m earnings for the remaining FY 2023, I' m confident of the future prospects of this company.

the much awaited COD is finally here for the other 2 hydro plants.

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ISDN RECEIVES COMMERCIAL OPERATION APPROVAL AND COMMENCEMENT DATE FOR ANGGOCI AND SISIRA HYDROPOWER PLANTS
https://links.sgx.com/FileOpen/eISDN-Ann...eID=762709

Investor Update
https://links.sgx.com/FileOpen/eISDN-Ann...eID=744042
" .... We have several ways to realise value for ISDN shareholders : 
- ISDN share price grows to recognise hydro value 
•Option: keep energy business with high quality earnings contribution, and raise dividends 
•Option: reinvest to realise strong added return on equity

- ISDN share price does not recognise hydro value 
•Option: IPO or sell some/all of energy portfolio to realise returns...."

ISDN: First hydropower plant to add 18.5% to group earnings
https://www.nextinsight.net/story-archiv...p-earnings

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Meanwhile, perhaps a peek into the automation situation in China ...

Q&A for FY2022 Results Briefing  (April 10, 2023)
https://www.yaskawa-global.com/wp-conten...2_en_1.pdf
"... 
Q AC servo's orders in China were affected by resurgence of COVID-19 and Chinese New Year in 4Q. When do you think it will recover? What about the rest of the world? 
A We expect orders to bottom out in 4Q. Orders in March showed signs of recovery. This is also true globally. While there will be a recovery due to the trend of automation, we are cautious about semiconductors. We expect semiconductor orders to start improving at the end of the fiscal year ..."

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and some concerns at the macro level ....

China industrial profits tumble 18% in April as demand sputters
https://www.reuters.com/world/china/chin...023-05-27/

[dreamybear]

Despite the much awaited good news of hydro obtaining COD, CIMB's latest research report substantially reduced its EPS projection, and also its target price, with concerns about its China business.

The CIMB report does provide a good historical background on the hydro venture - a decade(or more) story in the making (more hydro on the way) ! It makes me ponder over OPMI investing in a stock VS controlling shareholders their business.

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CGS-CIMB downgrades ISDN to 'reduce' on weaker prospects in China
https://www.theedgesingapore.com/capital...ects-china

Commercial operation date obtained
https://rfs.cgs-cimb.com/api/download?fi...DBD8E674B8