ISDN Holdings

[weijian]

It will only be a matter of time, before China bounces back. And then its motion control business will enjoy the tailwinds, rather than the headwinds it is facing now.

Rather, IMHO the wild card is in its 3 hydro plants that has received commercialization approval. My past painful experiences tell me that investing in politically sensitive sectors like utilities (water, electricity, telecom) and infrastructure (toll roads, public transportation) entails a lot of risk. When things are going great, the monopolies themselves are cash machines. But when times get bad and it is time to choose, the decision makers will find it easier to appease the populace at the expense of foreigners.

If things do turn out great, this hydropower asset may eventually be divested and proceeds shared with OPMIs. But the consideration is whether Mgt has a track record of doing so? Besides asking for capital (share placements and HKEX listing) in the last decade, I do not remember Mgt doing any big asset disposals and sharing the proceeds via special dividends/capital reduction. Their 25% dividend payout ratio set since 2017 pales in comparison with what Founder CEO Teo is getting via his salary. But with Novus Tellus on board for last few years, maybe things will improve.

[dreamybear]

It will only be a matter of time, before China bounces back. And then its motion control business will enjoy the tailwinds, rather than the headwinds it is facing now.

Rather, IMHO the wild card is in its 3 hydro plants that has received commercialization approval. My past painful experiences tell me that investing in politically sensitive sectors like utilities (water, electricity, telecom) and infrastructure (toll roads, public transportation) entails a lot of risk. When things are going great, the monopolies themselves are cash machines. But when times get bad and it is time to choose, the decision makers will find it easier to appease the populace at the expense of foreigners.

If things do turn out great, this hydropower asset may eventually be divested and proceeds shared with OPMIs. But the consideration is whether Mgt has a track record of doing so? Besides asking for capital (share placements and HKEX listing) in the last decade, I do not remember Mgt doing any big asset disposals and sharing the proceeds via special dividends/capital reduction. Their 25% dividend payout ratio set since 2017 pales in comparison with what Founder CEO Teo is getting via his salary. But with Novus Tellus on board for last few years, maybe things will improve.

I agree with your analysis. 

ISDN will likely benefit from the automation trend in the long run. 

At the same time, learning from the hydro experience, we need to factor-in the way things work in each country individually. Even now that the plants have obtained COD, I don't think we can simply assume things will be perfectly smooth *touch wood* To me, having Novo onboard is significant (S in the ABS framework). I wld probably have sold off my holdings during the previous run-up if not for their involvement. 

At the end of the day, OPMI has to remember we are not the controlling shareholders. Realistically, I don't think we can expect to be able to reap the full benefits of the business.

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It sends a negative message’: Hydropower players lament PLN power cap in Sumatra'
https://www.thejakartapost.com/news/2020/07/01/it-sends-a-negative-message-hydropower-players-lament-pln-power-cap-in-sumatra.html.

[dreamybear]

Under Fig 2 Peer comparison, ISDN seems to be trading at weaker valuations than its peers, despite I think most peers are facing headwinds of some/similar sorts .... perhaps it is the optics ?

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https://rfs.cgs-cimb.com/api/download?fi...69F1F4D7DF

[weijian]

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

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When ISDN first presented their hydropower update back in Jan2023, it looked really good, as a matter of fact, too good (to be true?). With FY23 results released recently, I think there is finally more "clarity" with regards to the "earnings power" of the hydropower plants.

FY23 statements wrt to the hydropower plants:
ISDN’s hydropower business (2% of revenue) reached historic milestones in FY2023 with all 3 initial plants now commercialised and delivering approximately $8m in recurring net cash income a year for the Group.

In FY2023, the Group recognised S$3.1 million operating revenue and S$3.6 million finance lease income as revenue for the three hydropower plants. A total of S$8.8 million was billed to PT PLN (Persero) (“PLN”) for FY2023 and received as of January 2024.

So what is "finance lease income"? ChatGPT definition of "finance lease income" as below:
The finance lease income consists of the total payments received by the lessor over the lease term. This income is recognized over the lease term as the lessee makes the lease payments. The lessor typically earns both interest income and a recovery of the cost of the leased asset through these payments.

So finance lease income is actually a "return of capital". This amount in the commentary matches very closely with what occurs at the cashflow statement where it de-recognized "receivables from service concession arrangements" of 3,464,000 for FY23. To recap, ISDN capitalizes all the costs of construction for the hydropower plants under "Service concession receivables" on the balance sheet.

In essence, this "8mil of recurring net cash income" consists of returns of capital + returns on capital. The true "net profit" as we all know it, is probably only between 40-60% of 8mil (if VBs with much better accounting skills than me, can help derive a more "accurate figure")

Now if we look back the previous IN article and ISDN press release, some numbers like "+18.5% based on annualised 2022 earnings" and "Cash return on equity: 27%" are probably over-rated.

[BRT]

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.

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

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

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

When ISDN first presented their hydropower update back in Jan2023, it looked really good, as a matter of fact, too good (to be true?). With FY23 results released recently, I think there is finally more "clarity" with regards to the "earnings power" of the hydropower plants.

FY23 statements wrt to the hydropower plants:
ISDN’s hydropower business (2% of revenue) reached historic milestones in FY2023 with all 3 initial plants now commercialised and delivering approximately $8m in recurring net cash income a year for the Group.

In FY2023, the Group recognised S$3.1 million operating revenue and S$3.6 million finance lease income as revenue for the three hydropower plants. A total of S$8.8 million was billed to PT PLN (Persero) (“PLN”) for FY2023 and received as of January 2024.

So what is "finance lease income"? ChatGPT definition of "finance lease income" as below:
The finance lease income consists of the total payments received by the lessor over the lease term. This income is recognized over the lease term as the lessee makes the lease payments. The lessor typically earns both interest income and a recovery of the cost of the leased asset through these payments.

So finance lease income is actually a "return of capital". This amount in the commentary matches very closely with what occurs at the cashflow statement where it de-recognized "receivables from service concession arrangements" of 3,464,000 for FY23. To recap, ISDN capitalizes all the costs of construction for the hydropower plants under "Service concession receivables" on the balance sheet.

In essence, this "8mil of recurring net cash income" consists of returns of capital + returns on capital. The true "net profit" as we all know it, is probably only between 40-60% of 8mil (if VBs with much better accounting skills than me, can help derive a more "accurate figure")

Now if we look back the previous IN article and ISDN press release, some numbers like "+18.5% based on annualised 2022 earnings" and "Cash return on equity: 27%" are probably over-rated.

not replying specifically to this case as i dont know the details, but generally if they use high leverage, the numbers may make sense (at least on the model). usually this type of long term stable predictable infrastructure asset can get ~80% debt. so the return on the equity may be double digit percentages.

[weijian]

When ISDN first presented their hydropower update back in Jan2023, it looked really good, as a matter of fact, too good (to be true?). With FY23 results released recently, I think there is finally more "clarity" with regards to the "earnings power" of the hydropower plants.

FY23 statements wrt to the hydropower plants:
ISDN’s hydropower business (2% of revenue) reached historic milestones in FY2023 with all 3 initial plants now commercialised and delivering approximately $8m in recurring net cash income a year for the Group.

In FY2023, the Group recognised S$3.1 million operating revenue and S$3.6 million finance lease income as revenue for the three hydropower plants. A total of S$8.8 million was billed to PT PLN (Persero) (“PLN”) for FY2023 and received as of January 2024.

So what is "finance lease income"? ChatGPT definition of "finance lease income" as below:
The finance lease income consists of the total payments received by the lessor over the lease term. This income is recognized over the lease term as the lessee makes the lease payments. The lessor typically earns both interest income and a recovery of the cost of the leased asset through these payments.

So finance lease income is actually a "return of capital". This amount in the commentary matches very closely with what occurs at the cashflow statement where it de-recognized "receivables from service concession arrangements" of 3,464,000 for FY23. To recap, ISDN capitalizes all the costs of construction for the hydropower plants under "Service concession receivables" on the balance sheet.

In essence, this "8mil of recurring net cash income" consists of returns of capital + returns on capital. The true "net profit" as we all know it, is probably only between 40-60% of 8mil (if VBs with much better accounting skills than me, can help derive a more "accurate figure")

Now if we look back the previous IN article and ISDN press release, some numbers like "+18.5% based on annualised 2022 earnings" and "Cash return on equity: 27%" are probably over-rated.

not replying specifically to this case as i dont know the details, but generally if they use high leverage, the numbers may make sense (at least on the model). usually this type of long term stable predictable infrastructure asset can get ~80% debt. so the return on the equity may be double digit percentages.

@BRT,
I am not sure if the financing is project finance (ie. the debt is paid upon construction milestones and recourse only to the asset). But I remember it is probably not. And if it is not, I am not sure how the ROE can be calculated. But considering ISDN's PR style, they would surely present ROE numbers if it were "impressive".

So it does seem what I postulated earlier, is not too far off based on the company's reply to Mr Günter Witt's question. Essentially ISDN's "recurring net cash income" is after all, EBTDA (no "I" as the debt is probably at parent level).

Minutes of Annual General Meeting

Mr. Günter Witt queried about the nature of the Company’s recurring stream of annual net cash income of S$8 million. Ms. Ho Ting Wai Christine (“Ms. Christine”) clarified that the S$8 million represents the Company’s annual cash earnings before taxes, depreciation and amortisation.

Mr. Günter Witt further queried about the Company’s renewable energy net profit margin. Ms. Christine responded that the net profit margin is about 30%-40%.

https://links.sgx.com/FileOpen/eISDN_FY2...eID=803339

[dreamybear]

imho, the company is/has been involved in many areas for its market cap e.g. motion control, cloud, training, hydropower, solar, robots ?

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https://links.sgx.com/FileOpen/eISDN%20P...eID=823866
"• ISDN’s subsidiary, Servo Dynamics, secured exclusive rights to distribute Dafang’s state-of-the-art robots for the construction industry in Singapore and Malaysia.
• Dafang’s solutions are approved by the Housing and Development Board (“HDB”) and are able to reduce labour costs by 50-80% and material waste by 15-50%, thereby, boosting construction efficiency and cost-effectiveness.
• This partnership aligns with HDB’s vision to implement robotics for painting in about half of new Build-to-Order (“BTO”) projects from 20251, enabling ISDN to capitalise on the shift towards industrial automation and robotics in the construction sector. "