The strong performance stemmed from a strong rally in ISDN’s performance in April following the reopening of ISDN’s Chinese operations in mid-march, with its 4M20 revenue growing 12.1% y-o-y to $112.2 million and net profit growing 31.4% y-o-y to $6.7 million. ISDN has received $95 million-worth of orders YTD.
“The recovery was [also] due to a broad-based pickup in business in ISDN’s key markets of Singapore, China and Vietnam,” adds Tng, who also noted that 4M20 net profit accounted for 80.4% of his net profit forecast for FY20.
In the medium-term, ISDN is looking to turn the Covid-19 shock into an opportunity for profit. It has partnered with Germany-based ERST Project GmbH to introduce two disinfectant technologies designed to aid the transition to a post-pandemic environment, tapping into greater public demand for virus-free surfaces.
The first product, Waterliq, is a safe, water-based disinfectant capable of deployment through humidifiers in human-safe fine droplets, and is able to kill 99.99% of pathogens; the second, Erstotizer, is a state-of-the-art disinfecting coating that can keep surfaces virus-free for 6- 24 months. ISDN has secured two commercial deployments with public-listed dormitory provider Centurion Corporation and interior design firm First Sight International Pte Ltd.
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“Given the lack of detailed financials, we assume gross margin improvement as the primary reason for the better-than-expected 1Q20 performance,” commented Tng, who revised his net profit forecasts upward by 49.2% for 2020, 20.1% 2021 and 11.3% for 2022 respectively. In addition to his “add” call, Tng has increased ISDN’s target price to 27.9 cents from 22 cents, representing a 26.8% upside.
Tng notes that potential re-rating catalysts could stem from stronger-than-expected sales orders for its mainstay motion-control business as well as stronger profits from clean energy. He identifies order delays, cost overruns, US-China trade escalation and a deepened Covid-19 outbreak as potential downsides for ISDN.
As of 11am, ISDN is trading at 24 cents with a price-to-earnings (P/E) ratio of 14.26, with dividend yield standing at 1.7%.
