In their July 31 note, they forecast 1HFY2025 earnings of $6.2 million, up 63% y-o-y.
Tng and Tan suggest that given how ISDN has built up a certain scale of its hydropower business, the company can consider selling it or spin-off for its own listing.
"This should then make it easier for investors to better understand and better value the company for its core industrial automation business. This should also widen the appeal of the company to investors who prefer companies to focus on their core business," they add.
From an earlier valuation multiple of 8.8x FY2026 earnings, they now value the company at 13.5x FY2026 earnings, which is the ten-year FY2016 to FY2025 average.
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Tng and Tan justify this higher multiple as they believe that ISDN's share price has already discounted some the tariff impact, and that the underlying business is experiencing some
recovery.
In addition, small-cap stocks are enjoying better valuation with the impending $5 billion in market rejuvenation funding.
From an earlier target price of 28 cents, Tng and Tan deem ISDN is now worth 44 cents.
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According to the analysts, re-rating catalysts include higher-than-expected net profit contribution from its hydropower business segment, a faster pace of economic growth in China as it stimulates its economy and a stronger semicon recovery.
On the other hand, downside risks include weak customer demand if the global economy continues to slow, and the possibility of bad debts as economic conditions worsen.
ISDN Holdings shares changed hands at 38 cents as at 10.09 am, up 2.7% thus far for the day and up 22.58% year to date.
