Excerpts from CGS-CIMB report

Analyst: William Tng, CFA

Be part of the automation revolution

■ ISDN is a motion control specialist with more than 30 years of industry experience.

ISDN

Share price: 
21.5 c

Target: 
32 c

■ Strong prospects for its core motion control business, its hydropower plants coming on stream and investment by Novo Tellus could catalyse its stock.

■ We initiate coverage on ISDN with an Add rating and TP of S$0.32.


Motion control specialist
TeoCherKoon11.18bTeo Cher Koon, MD & President, ISDN Holdings. NextInsight file photoISDN Holdings Limited (ISDN) is an engineering solutions company specialising in integrated precision engineering and industrial computing solutions. The company offers a wide range of engineering services, mainly to customers that are manufacturers and original design manufacturers (ODM) of products and equipment that have specialised precision control requirements.

Strong principal in Maxon Motor
ISDN has a strong partnership with Maxon Motor AG (Unlisted). In Dec 2018, ISDN expanded this partnership with a joint venture company to market Maxon’s products in Southeast Asia.

Headquartered in Switzerland, Maxon supplies high-precision drive systems to more than 55 countries. Its direct current motors can be found in home appliances like watch winders to sophisticated medical science equipment like surgical robots and autopilot systems in the aerospace industry. ISDN’s other key motor principal is Yasakawa Electric Corporation (6506 JP, Not Rated).

Plugged into the automation revolution
There are immense opportunities for ISDN arising from what has come to be known as the Fourth Industrial Revolution, in our opinion.

This includes technologies using artificial intelligence, collaborative robots and 3D printing, all of which require some form of motion control. ISDN’s engineers are actively engaging existing and potential customers to offer its services and to explore opportunities for collaboration.

The Novo Tellus angle
On 27 Feb 2019, ISDN announced that it will issue nearly 27m new shares to Novo Tellus (Unlisted), a private equity fund. Novo Tellus will nominate a director to ISDN’s Board. ISDN believes Novo Tellus has deep expertise in its core business sectors and would be able to contribute positively to its business.


williamtng4.14Potential rerating catalysts for the stock could come from stronger-than-expected sales orders for its mainstay motion control business and profit contribution from its clean energy segment (we currently assume zero earnings contribution from its energy business).

-- William Tng, CFA (photo)

Initiate coverage with Add

We initiate coverage with an Add rating and S$0.32 target price, based on CY20F P/E of 10x (c.30% discount to global peers in the global motion control market).

Key downside risks to our call include order delays and cost overrun in its energy business.



Full report here. 


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