ISDN, as Tng observed in his Feb 11 note, has been expanding its presence in Malaysia and Taiwan.
It continues to focus on its industrial automation activities in China as well, with prospects underpinned by labour shortages and demographic decline in the country.
Tng’s projection for ISDN’s 2HFY2024 concurs with the company’s expectations of recovery in its key IA segment.
Led by a stronger second half, Tng estimates ISDN to report earnings of $7.9 million for its FY2024, up 60.4% over the preceding year.
Meanwhile, ISDN has also continued to explore avenues to diversify and grow its revenue.
On Nov 1, 2024, it announced that its subsidiary, Servo Dynamics, secured exclusive rights to distribute Dafang’s state-of-the-art robots for the construction industry in Singapore and Malaysia.
According to ISDN, Dafang’s solutions are approved by the Housing and Development Board (HDB) and can reduce labour costs by 50% to 80% and material waste by 15% to 50%.
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Tng’s upgrade is premised on expectations of 12.0% to 43.1% y-o-y core earnings per share (EPS) growth for FY2025 to FY2026.
He has also accorded a higher valuation multiple on the stock - from a 10-year average price-to-earnings multiple of 11x, Tng now values this counter using 12.2 times FY2026 earnings.
For Tng, re-rating catalysts include higher-than-expected net profit contribution from its hydropower business segment and a faster pace of economic growth as China tries to re-stimulate its economy.
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.
As at 3.54pm, shares in ISDN Holdings are trading flat at 30.5 cents.
