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ISDN - Review before 2021 1H results

ISDN’s 1H result will be out in a matter of weeks. The financial statement will be out somewhere in the first week of August, while there is likely to be a profit guidance issued by the last week of July.

Before every release of financial results by companies that I hold equity in, I have always liked to go through a review of what is known so far and derive an expectation of what is to come in the upcoming results release.

For the first six months of 2021, the world is pretty much still embroiled in the pandemic that started more than a year back. Various countries are racing to get the general population vaccinated in a bid to move past the pandemic and resume normal activities. With the rise of the Delta variant, the much more transmissible virus has pushed up new case counts and drove many regions back into lock-downs. Under such a backdrop, the tide of industrial automation has continued to push ahead, benefiting companies like ISDN along the way.

Motion Control Sector Performance

Let us attempt to put some figures to the situation by looking at one of the partners of ISDN, Yaskawa Electric and how they have performed. The company has just released their FY2021 1Q results (period from March - May).

Source: Yaskawa Global Website

The motion control sector continues to power ahead in terms of growth. Looking at the past 2 quarters, we can see that sequentially the revenue has increased from 44bil yen to 59.9bil yen from 2020 4Q to 2021 1Q, a 36% increase.

Source: Yaskawa Global Website

Source: Yaskawa Global Website

With this release, Yaskawa Electric has revised their forecast for full year revenue. Motion Control revenue for FY2021 is further revised upwards by 8% from the prior forecast, with the sector expected to increase from 176bil yen of revenue to 215bil yen of revenue (22% revenue growth).

Source: Yaskawa Global Website

And like previous quarters, China’s share is growing at a faster rate than the remaining countries, outstripping even Japan itself. What is worth noting as well is that the growth is now much more broad based across all regions. This is likely to be beneficial to ISDN’s operations outside of China.

Chinese Industrial Automation Trend

As a proxy to figuring out how well ISDN is doing, I have been tracking the production of industrial robots domestically in China. The measure has been quite a good proxy so far in the last few years. As you can see, the production has increased significantly in 2020 and even further in 2021. Though robotics and motion control are not the same, but I believe both reflects the wave of labor replacement and should move in tandem.

Source: Data from National Bureau of Statistics of China

As you can see from the latest June's statistic, it is at a record high and would be able to provide indications for June performance where Yaskawa's results does not cover.

Updates for ISDN

A few months back, ISDN put up a press release detailing its FY2021 1Q performance. A stellar performance nonetheless which shows a doubling of profits attributable to shareholders.

The revenue seems to have grown only by 23.4%, but let us take a step back and view it in the context of 2020 1Q.

In its 2020 1Q voluntary disclosure, the company has stated that core business revenue was S$61.5mil for 2020 1Q. Since there is no mention of non-core business performance in 2021 1Q results, even if assuming S$5mil is revenue contributed by other businesses, core business revenue growth is by 51.9% year on year. What does that herald for 2021 2Q revenue?

My Expectations

Having said all the above, I am going to put my neck out and put a number to what I am expecting for 2021 1H. This is going to be quite an outrageous number but is what I truly believe the company performance to come in at. I think for 2021 1H, the profit after tax attributable to shareholders will come in at circa S$14mil. This is probably a stretch to most people’s expectations since it would have already met 66% of KGI’s expected full year performance and 57% of CIMB’s expected full year performance.

To be fair, the two research houses might be buffering for write downs that might happen at the end of the year, but I would not expect a write-off of similar magnitude to happen this year since most of it seem one off (write-off on long held receivables from 2 non-operating investee companies and provision for legal compensation risk related to previously announced litigation against GM).

All in all, it seems a long shot compared to what analysts in the industry are estimating, but I am sticking with my expectations since that is what my own research and calculations indicates, driven by higher revenue and improved profit margins.

Dividend Scrip

The company, in line with its practices, has provided the choice of dividend in scrip or in cash. Exercise price is S$0.689. Currently, at the time of writing, the share is trading at S$0.75. The date due for the subscription election is probably before the release of results. I will most probably be electing to get shares. How about you?

Disclaimer: All posts on The Squirrel's Drey are for informational and discussion purposes only. This is not a recommendation to buy or sell securities discussed. Please do your own due diligence before investing.

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1 Comment

Cedric Yang
Cedric Yang
Mar 28, 2023

Good evening! Do you have an updated view of ISDN? Thanks!

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