Initiating Coverage UOB

S I N G A P O R E
R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017
MONEY TALK BUY

ISDN HOLDINGS (ISDN SP) (Initiate Coverage)
"Made in China 2025" And "Belt and Road" To Power Growth
With the advent of Industry 4.0, Chinas Belt and Road and the global Share Price S$0.225
semiconductor recovery, we believe ISDNs net profit will grow at an astounding Target Price S$0.35
44% CAGR in 2016-19 (in part thanks to a low 2016 base) with its solid leadership
position in the motion control market. Despite strong growth and net cash Upside +55.5%
representing 29.2% of market cap, this laggard play is trading at much lower
valuation than peers. Initiate coverage with BUY and target price of S$0.35, based COMPANY DESCRIPTION
on peers average of 10.6x FY18 PE.
INVESTMENT HIGHLIGHTS ISDN Holdings is an engineering services
company. The company designs, produces,
Initiate coverage with BUY and PE-based target price of S$0.35, implying a 55.5% and sells motion control, industrial computing,
upside. At 6.8x 2018F PE and 0.5x 2018F P/B, ISDN Holdings (ISDN) trades at a and other related engineering services. It also
significant discount to its manufacturing peers. Even conservatively forecasting its undertakes infrastructure projects around the
hydropower business to contribute zero profits, we can still expect adjusted attributable world.
profits to grow at a 2016-19 CAGR of 21%. Key share price catalysts include more
rewards to shareholders and more orders arising from China's Belt and Road drive. GICS sector Industrials
Market leader in motion control with high barriers of entry. ISDN boasts close to Bloomberg ticker: ISDN SP
30 years of experience as an integrated engineering solutions provider. Frost & Shares issued (m): 394.7
Sullivan puts the company as the number one and number four motion control player Market cap (S$m): 88.8
(which involves high entry barriers such as technical knowledge, industry partners and Market cap (US$m): 64.1
human capital required) in Singapore and China respectively.
3-mth avg tover (US$m): 0.2
ISDN benefitting from the global semiconductor recovery with an 11.5% market
growth in 2017. With its significant focus on semiconductor as a downstream industry,
ISDN is helped by the recent global recovery in the semiconductor industry. With the PRICE CHART
World Semiconductor Trade Statistics forecasting an 11.5% yoy market growth in 2017,
ISDN should benefit, thanks to its downstream semiconductor customers.
Motion control solutions make ISDN well positioned to ride Chinas Industry 4.0 -
Made in China 2025. With its motion control and specialised engineering solutions,
ISDN is well positioned to ride the wave of Industry 4.0 which focuses on automated
manufacturing. In particular, Chinas version of Industry 4.0 - Made in China 2025 -
will be the wave to carry ISDN forward, given its exposure to the worlds factory.
Beneficiary of Chinas Belt and Road strategy. With state-owned CRRC Corp (the
worlds largest rolling stock/railway vehicle manufacturer) critical in supplying railroad
vehicles in the vast railway networks under Chinas Belt and Road vision, ISDN looks
set to benefit with its long standing relationship supplying customised locks and hinges
looks to the manufacturing giant.
Potential exposure to one of the largest inter-government projects. With recent
newsflow surrounding the Singapore-Malaysia high speed railway (HSR) project, we Source: Bloomberg
view the possibility of ISDNs potential involvement through its long-standing working
relationship with CRRC Corp as a potential catalyst.
Robust balance sheet and rosy prospects call for reward to shareholders.
Despite its successfully listing on the Hong Kong mainboard, share price has
underperformed peers as the market awaits ISDN to reward shareholders. With 2017F
net cash of S$25.9m (29.2% of current market capitalisation) and strengthening
prospects, we see share buybacks or higher dividends as key solutions to solve the
valuation trap.
KEY FINANCIALS
Year to 31 Dec (S$m) 2015 2016 2017F 2018F 2019F
Net turnover 235.3 258.5 284.5 312.5 342.4
Core EBITDA 19.2 16.1 23.8 29.3 34.4
Operating profit 17.0 14.0 21.5 26.7 31.4
Net profit (rep./act.) 8.7 5.2 10.4 13.0 15.4
Net profit (adj.) 8.7 8.7 11.5 13.0 15.4
EPS (cent) 2.46 2.44 2.91 3.30 3.89 ANALYSTS
PE (x) 9.2 9.2 7.7 6.8 5.8
Edison Chen
P/B (x) 0.6 0.6 0.6 0.5 0.5
+65 6590 6637
EV/EBITDA (x) 4.4 4.4 4.4 4.4 4.4
[email protected]
Dividend yield (%) 1.8 1.3 2.9 3.7 4.3
Net margin (%) 3.7 2.0 3.7 4.2 4.5 Yeo Hai Wei
Net debt/(cash) to equity (%) (17.6) (18.5) (17.0) (15.8) (15.8) +65 6590 6637
Interest cover (x) 31.0 29.4 60.1 262.5 345.3 [email protected]
Source: Bloomberg, UOB Kay Hian
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S I N G A P O R E
Valuation
Initiate coverage with BUY and target price of S$0.35, based on 10.6x 2018F PE. On
the back of manufacturing upgrades across the globe, we like ISDN for its: a) exposure
to the global semiconductor recovery, b) solid positioning for Industry 4.0, c) key
beneficiary of Chinas Belt and Road strategy, d) 30 years of established track record
and expertise that cuts across diverse downstream industries backed by consistent
profitability, e) potential exposure to the Singapore-Malaysia HSR project, and f)
undemanding valuation at 6.8x 2018F PE.
We value ISDN at S$0.35, pegged to peers average of 10.6x 2018F PE.
FIGURE 1: VALUATION
Business Type Multiple (S$m)
ISDN PE 10.6x 138.1
Total 138.1
No. of shares (m) 394.7
Value per share (S$) 0.35
Source: UOB Kay Hian
Generally, the company is recognising the need for marketable innovations to

engineering solutions and is answering this challenge with tie-ups and joint ventures with
strategic partners. ISDNs strategy of maintaining and growing its core products while
leveraging on its technical expertise to expand into other downstream industries to
generate new growth, and increasing brand presence resonates well with us.
We forecast attributable net profit CAGR of 44% for 2016-19 on the back of strong
manufacturing upgrades across core markets of Singapore and China aided by
supportive government policies, although noting that 2016 was affected by a S$3.5m
listing fee. We conservatively value earnings from ISDNs hydropower plant business at
zero. ISDN is expecting three hydropower plants to come on stream between mid-18 and
mid-19.
S I N G A P O R E
Peer Comparison
Fair value at 10.6x 2018F PE. Singapore-listed manufacturing peers are currently
trading at an average of 10.6x 2018F PE. ISDN has net cash of S$25.9m, representing
29.2% of market capitalisation. On an ex-cash PE basis, ISDN is trading at only 5.5x
2017F PE.
While ISDN stands out as a niche operator as an integrated engineering solutions
provider, it may appear to investors that its business is organised as a solutions provider
distributing engineering solutions with no manufacturing capabilities. Nothing could be
further away from the truth as ISDN has built up substantial manufacturing prowess
through numerous Asia-focused joint ventures with strategic partners like Maxo Motor,
Eisele Antriebstechnik and Dirak Group.
We opine that this could be the reason why ISDN has yet to undergo a re-rating like that
of most companies with significant precision engineering operations. ISDN should trade
at its peers average PE, given: a) its low gearing, b) large net cash, and c) it trading at a
40% discount to book despite a respectable 6.4% ROE.
FIGURE 2: PEER COMPARSION
Price @ Market ------------ PE ----------- ----------- P/B ----------- Yield ROE
Company Ticker 7 Jun 17 Cap FY 2017F 2018F 2017F 2018F 2017F 2017F
(S$m) (US$m) (x) (x) (x) (x) (%) (%)
Hi-P International Ltd HIH SP 1.02 595.64 31 Dec 12.1 11.5 1.3 1.2 1.0 11.5
Sunningdale Tech Ltd SUNN SP 2.11 287.51 31 Dec 11.5 10.6 1.1 1.0 3.3 9.6
Fu Yu Corp Ltd FUYU SP 0.20 109.12 31 Dec 14.3 10.0 0.9 0.9 9.0 6.7
Valuetronics VALUE SP 0.835 253.5 31 Mar 12.4 10.9 2.0 1.8 4.4 16.4
Memtech International MTEC SP 0.975 99.53 31 Dec 11.8 10.1 0.9 0.8 4.2 7.8
Average 12.4 10.6 1.2 1.1 4.4 10.4
ISDN Holdings Ltd* ISDN SP 0.225 64.10 31 Dec 7.7 6.8 0.6 0.5 2.9 6.8
S I N G A P O R E
Industry Outlook: Beneficiary Of Industry 4.0 And Chinas Belt And Road
Industry 4.0 Smart manufacturing for the future. As manufacturing competition
continues to intensify, the automation of manufacturing processes to capture
improvements and efficiencies will serve as cornerstones of smart manufacturing. In
accordance with the vision of Industry 4.0, humans can make use of data and smart
machines to alleviate current constraints and jointly perform manufacturing tasks in the
future. The consequent technology-driven changes promise to trigger a new industrial
revolution where cost savings and productivity gains will lead to higher and more
sustainable levels of profits.
FIGURE 3: INDUSTRY 4.0 IS CHANGING TRADITIONAL MANUFACTURING RELATIONSHIPS
Source: The Boston Consulting Group
Heart of Industry 4.0 is about intelligent manufacturing. Industry 4.0 was initially a
concept first discussed by the Germans in 2011 and later adopted in 2013. The heart of
the Industry 4.0 concept is about intelligent manufacturing, ie applying the tools of
information technology to production. For the Germans, this primarily means using
Internet of Things to connect small and medium-sized companies more efficiently in
global production and innovation networks so that they could not achieve not just efficient
and productive mass production but also easy and efficient production of customised
products.
FIGURE 4: IN GERMANY, INDUSTRY 4.0 WILL GENERATE SIGNIFICANT PRODUCTIVITIY GAINS
Source: Federal Statistical Office of Germany, The Boston Consulting Group
S I N G A P O R E
Chinese version of Industry 4.0 - Made in China 2025. The Industry 4.0 concept
was subsequently adopted by many governments across the world, in particular, China
has come up with its version. The Made in China 2025 call was first put forward by
Premier Li Keqiang in his government work report in 2015, in which he urged
accelerating the transformation of China from a manufacturing giant into a global
manufacturing power.
China striving at smart manufacturing... Smart manufacturing pilot cities, like Ningbo
in Chinas coastal Zhejiang province, focus on implementing smart equipment and using
cloud computing. Vice Premier Ma Kai has recently encouraged attempts at smart
manufacturing, noting that China needs to strive harder to reach international industry
levels.
but still in nascent stages with plenty of growth potential. China is far from
reaching the vision of setting up factories that carry out production processes entirely
without human intervention. As Boy Lthje of Sun Yat-Sen University in Guangzhou
noted, even in the smartest factories in China, assembly lines in which workers carry
out processes persist. China is in the nascent stages of "smart" production, and is
addressing one aspect of this process at a time.
Plan has clear principles, goals, tools, 10 priority sectors with two sectors
important to ISDN. The Made in China 2025 plan was drafted by the Ministry of
Industry and Information Technology (MIIT) over two and a half years, with input from
150 experts from the China Academy of Engineering. As we examine the plan, we
realise that although the goal is to upgrade the manufacturing industry as a whole, the
plan highlights 10 priority sectors and two are particularly important to ISDN - automated
machine tools & robotics as well as modern rail transport equipment.
FIGURE 5: CLEAR PRINCIPLES, GOALS, TOOLS, AND SECTOR FOCUS FOR MADE IN CHINA 2025
Clear principles, goals, tools, and sector focus for Made in China 2025
Guiding principles: Innovation-driven manufacturing which emphasise quality over quantity, achieve green development, optimise the structure of Chinese industry, and
nurturing of human talent.
Goal: Comprehensively upgrade Chinese industries, making them more efficient and integrated so that they can occupy the highest parts of global production chains. The plan
identifies the goal of raising domestic content of core components and materials to 40% by 2020 and 70% by 2025
Tools & support: Although there is a significant role for the state in providing an overall framework, utilising financial and fiscal tools, and supporting the creation of
manufacturing innovation centres (15 by 2020 and 40 by 2025), the plan also calls for reliance on market institutions, strengthening of intellectual property rights protection for
small and medium-sized enterprises and more effective use of intellectual property in business strategy, and allowing firms to self-declare their own technology standards and
help them better participate in international standards setting.
Priority sectors: 1) New advanced information technology; 2) Automated machine tools & robotics; 3) Aerospace and aeronautical equipment; 4) Maritime equipment and high-
tech shipping; 5) Modern rail transport equipment; 6) New-energy vehicles and equipment; 7) Power equipment; 8) Agricultural equipment; 9) New materials; and 10) Biopharma
and advanced medical products.
Source: China State Council, Center for Strategic and International Studies, UOB Kay Hian
Integrated engineering solutions in China to grow at 2015-20 7.6% CAGR. Other

than Made in China 2025, there are a number of other initiatives, eg Several
Suggestion on Development of Scientific and Technological Service Industry (See
Appendix), that are expected to push the growth of overall manufacturing and hence
integrated engineering solutions. According to Frost & Sullivan, the value of this market
in China amounted to S$24.6b in 2015, up from S$20.0b in 2011, representing a CAGR
of 5.4%, with 2015-20 CAGR to reach 7.6%.
S I N G A P O R E
FIGURE 6: VALUE OF INTEGRATED ENGINEERING SOLUTIONS MARKET IN CHINA

40 15.0%
35 13.0%
7.6%
30 11.0%
25 5.4% 9.0%
20 7.0%
15 5.0%
10 3.0%
5 1.0%
0 -1.0%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Value of Integrated Engineering Solutions Market (S$b) - LHS Annual Growth Rate (%) - RHS
Source: Frost & Sullivan
Motion control as part of automation solutions will grow even faster. In particular,
the intelligence manufacturing and automation section plays an important role in driving
the development of integrated engineering solutions in China. For example, motion
control as a segment which provides parts and solutions for factory automation and
robotics is expected to grow faster at a 2015-20 CAGR of 7.9%, faster than that for
general integrated engineering solutions.
FIGURE 7: VALUE OF MOTION CONTROL SOLUTIONS MARKET IN CHINA
4.0 25.0%
3.5 7.9% 20.0%
3.0 15.0%
4.7%
2.5 10.0%
2.0 5.0%
1.5 0.0%
1.0 -5.0%
0.5 -10.0%
0.0 -15.0%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Value of China Motion Control Solutions Market (S$b) - LHS Annual Growth Rate (%) - RHS
ISDNs motion control solutions means it is well positioned to ride the first priority
sector of automated machine tools & robotics. With ISDNs motion control and other
specialised engineering solutions which provide parts and solutions for factory
automation and robotics, ISDN is well positioned to ride on market growth fuelled by not
only Made in China 2025 but also the global industry trend for intelligent manufacturing
and factory automation.
Second sector of modern rail transport is due to ISDLs relationship with worlds
largest railway vehicle manufacturer. The second priority sector of modern rail
transport equipment is important to ISDN because of its multi-year relationship with its
primary Chinese customer. That state owned enterprise customer, CRRC Corp, is the
largest rolling stock (railway vehicles) manufacturer in the world with 175,700 employees
(at its 2015 inception with the merger of CSR Corp and China CNR Corp). This also
leads us to the second trend in which ISDN is a key beneficiary of Chinas One Belt, One
Road strategy.
S I N G A P O R E
Belt and Road involves expansive railway networks spanning from Beijing to
Madrid. Inspired by the ancient Silk Road trade routes, Chinese President Xi Jinping has
proposed a development strategy that focuses on connectivity and cooperation between
Eurasian countries with six key economic corridors under the Belt and Road strategy.
Other than the Maritime Silk Road, the land-based Silk Road Economic Belt comprises
expansive railroad networks that span from Beijing to Madrid. On 1 Jan 17, China
launched the first rail freight to London.
FIGURE 8: ONE BELT, ONE ROAD WITH THE SILK ROAD INITIATIVE; CHINA AIMS TO BUILD A GLOBAL INFRASTRUCTURE NETWORK
Source: Mercator Institute For China Studies
CRRC is de facto manufacturing king of Chinas railway vehicles; key beneficiary

of Belt and Road. The vast railway network translates into huge demand for rolling stock
(railroad vehicles) and likewise, locks and hinges for these railway vehicles. The merger
between the northern China CNR Corp and southern CSR Corp resulted in CRRC
becoming Chinas de facto manufacturing king for these railway vehicles in China and
hence a key beneficiary of the Belt and Road strategy.
CRRC has been turning to ISDN for customised locks and hinges for the past eight
years. Locks and hinges are important components of railway vehicles and require some
level of customisation. As these customised locks and hinges for trains become exposed
to the weather and motion vibrations, they will need to be replaced from time to time and
CRRC has been turning to ISDN to replace these customised locks and hinges for the
past eight years. As CRRC rides on the Belt and Road strategy, we believe ISDN as its
supplier will also benefit greatly.
S I N G A P O R E
Business Outlook: Healthy Core Business Riding On Semiconductor Recovery

Clear market positioning as an integrated engineering solutions provider
principally engaged in motion control. According to Frost & Sullivan, ISDN was
ranked first and fourth in terms of revenue in Singapore and Chinas motion control
solution markets respectively. The market sizes of Singapore and China were about
S$0.2b and S$2.6b, and the five largest players accounted for 25.1% and 29.6% of these
markets respectively. We expect ISDN to defend its position and continue to ride on
growth in its key markets.
FIGURE 9: MARKET SHARE OF TOP 5 COMPETITORS BY REVENUE IN FIGURE 10: MARKET SHARE OF TOP 5 COMPETITORS BY REVENUE IN
CHINA MOTION CONTROL SOLUTIONS MARKET, 2015 SINGAPORE MOTION CONTROL SOLUTIONS MARKET, 2015
Huitong
9% Siemens ISDN
7% 10% CEHGroup
6% Bosch
Rexroth
3%
Gowell
6% PBAGroup
3%
ISDN Servo
5% Connect
Takayama 3%
3%
Others
70% Others
75%
Source: Frost & Sullivan Source: Frost & Sullivan
Growth momentum will continue unabated. Motion control is integral to the vision of a
smart factory and is a key area in which ISDN operates in. The Chinese market will be
the key driver of this growth and will represent a S$3.76b motion control market in 2020
(vs S$480.6m for Singapore and Malaysia), according to Frost & Sullivan. Historically,
ISDN grew at a faster clip compared to the markets it competes in, and we expect this
trend to persist due to its clear value proposition vs competition.
FIGURE 11: ISDNS REVENUE (S$M)
Source: ISDN, UOB Kay Hian
Semiconductor recovery a plus for ISDN. The recent recovery in the semiconductor
industry is also good news as ISDN has a heavy focus on semiconductors with clients in
its downstream value chain. Nasdaqs PHLX Semiconductor Index, which tracks
semiconductors listed in the US (including foreign firms), has risen 75.7% from its low in
May 16. Ggoing forward, World Semiconductor Trade Statistics (WSTS) is expecting an
11.5% growth in the index for 2017, the highest since 2010.
S I N G A P O R E
FIGURE 12: NASDAQ PHLX SEMICONDUCTOR INDEX (SOX)

1,200
1,100
1,000
900
800
700
600
500
400
May16 Jun16 Jul16 Aug16 Sep16 Oct16 Nov16 Dec16 Jan17 Feb17 Mar17 Apr17 May17
PHLXSemiconductorIndex(SOX)
Source: Investing.com
FIGURE 13: WSTS FORECASTS THE SEMICONDUCTOR MARKETS LARGEST GROWTH IN MORE
THAN FIVE YEARS
Source: World Semiconductor Trade Statistics
New areas of growth. ISDN operates in at least seven countries, serving an estimated
7,000 customers in a wide range of industries. Other than its heavy focus on the
semiconductor industry, management is looking to deepen its penetration in three main
downstream industries: a) healthcare and pharmaceuticals, b) aerospace, and c)
mobility. We note that these new areas of growth not only provide addition revenue
streams but the resultant diversification also protects against concentration risks and
reduces exposure to cyclicality of individual industries.
Singapore-Malaysia HSR project could involve ISDN. With recent newsflow
surrounding the Singapore-Malaysia HSR project, we view the possibility of ISDNs
exposure to one of the largest inter-governmental projects between Singapore and
Malaysia as a potential catalyst. In late-16, a Chinese consortium consisting of China
Railway Corporation, CRRC, China Railway Group, China Communications Construction
Company and China Railway Construction Corporation announced its intention to build
the Singapore-Malaysia HSR. ISDNs rich heritage as a Singapore company with
associated cutting edge capabilities and its long-standing working relationship with
CRRC makes it the ideal supplier for CRRCs bid.
S I N G A P O R E
FIGURE 14: SINGAPORE-MALAYSIA HIGH-SPEED RAILWAY PREFERRED ALIGNMENT
Source: LTA, The Straits Times, UOB Kay Hian
Energy business: No near-term visibility. We note the current challenging

environment in Indonesias energy market but we opine that ISDNs energy business
could still make positive contributions. Despite initial uncertainties surrounding its foray
into the energy business, ISDN had persevered and pulled through. ISDNs first
hydropower plant in Sumatra is slated for completion in mid-18 and will have a plant
capacity of 4.6MW. This will be followed by another two plants which will be completed
by mid-19.
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S I N G A P O R E
Financials: 44% Attributable Profit CAGR In 2016-19

Revenue expected to grow at 9.8% CAGR. In recent years, ISDN has a proven track
record in identifying key market trends and riding the up-cycle of downstream industries.
We expect this trend to persist. The companys early move into the Chinese market was
well timed and ISDN has reaped the benefits through steady headline growth. That story
appears to be repeating with the current semiconductor boom and the mid-term focus on
the healthcare industry, which should bring about stable profitability and growth. We
expect ISDNs overall growth to continue at a clip faster than the markets it operates in.
The base for steady growth in cash flows and investor returns is well established over
our forecast period.
We expect motion control solutions and other specialised engineering solutions to grow
at a CAGR of 10.2% and 8.4% in 2016-19 respectively, driven by supportive government
policies and general uptick in automation arising from upgrades of manufacturing plants
in China. Going forward, we forecast revenue of S$284.5m and S$312.5m for 2017 and
2018 respectively.
FIGURE 15: REVENUE (S$M) BY SEGMENT
400
350
300
250
200
150
100
50
0
2015 2016 2017F 2018F 2019F
IndustrialComputingSolutions(S$m)
OtherSpecialisedEngineeringSolutions(S$m)
EngineeringSolutionsMotionControl(S$m)
Net profit CAGR of 44% in 2016-19. The higher revenue is expected to flow down to
the bottom line. We forecast net profits of S$11.5m, S$13.0m and S$15.4m in 2017-19
respectively. Barring the S$3.5m one-off listing cost in 2016, net profit would have been
S$8.7m but thanks to the low base in 2016, 2016-19 net profit CAGR is expected to hit
44% (21% if listing expenses were excluded).
FIGURE 16: PROFIT ATTRIBUTABLE TO SHAREHOLDERS (S$M)
18
16
14
12
10
8
6
4
2
0
2015 2016 2017F 2018F 2019F
ProfitAttributabletoShareholders(S$m)
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S I N G A P O R E
Net cash of S$22.9m, or 29.2% of market cap. As of 31 Mar 17, ISDNs net cash stood
at S$22.8m. We project net cash of S$25.9m as at end-17 (or 29.2% of its market cap of
S$88.8m). While dividends thus far have not been exciting, they have largely been
consistently paid out. Given the size of its net cash and increasingly positive prospects,
we opine ISDN should offer some form of dividend upside.
FIGURE 17: NET CASH & DIVIDEND PER SHARE
30 1.2
25 1.0
20 0.8
15 0.6
10 0.4
5 0.2
0 0.0
2015 2016 2017F* 2018F 2019F
NetCash(S$m)LHS OperatingCashflow(S$m)LHS
DividendPerShare(S$cents)RHS
* SDN raised S$8.57m due to its dual listing on the Hong Kong Stock Exchange
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S I N G A P O R E
Company Background: 30-Year Veteran With Diversified Experience

Veteran company with 30 years of experience. ISDN stands for International Servo
Dynamics Network. ISDN is an engineering solutions company specialising in integrated
precision engineering and industrial computing solutions. It started in 1986 as a small
supplier of servo motors and has gradually evolved into a multi-million dollar enterprise
with a footprint across Asia with dual listing on the SGX and the HKSE.
FIGURE 18: MILESTONES
Year Description
1980s Started with supplying servo motors in Singapore
Started motion control solutions in Kuala Lumpur, Malaysia
Maxon Suzhou was established to penetrate into China
1990s Started motion control solutions in Bangkok, Thailand
Established sales office in Hong Kong
Portwell was established in Singapore for industrial computing solutions
Introduced other specialised engineering solutions in China with products sourced from Dirak
Holding GmbH in Germany
2000s
Listed on the mainboard of SGX-ST in 2005
Started other specialised engineering solutions in Taipei, Taiwan
Started motion control solutions in Jakarta, Indonesia
2010s Started motion control solutions in Vietnam
Dual listing on the Hong Kong Exchange
Global network. Headquartered in Singapore, ISDN operates through 65 subsidiaries

with 65 sales offices in China, Hong Kong, Malaysia, Vietnam, Thailand, Taiwan and
Indonesia. We expect ISDN to leverage on its wide geographical coverage and benefit
from the ongoing shift of Hong Kong and China enterprises manufacturing base to
Southeast Asia.
FIGURE 19: ISDNS GLOBAL NETWORK
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S I N G A P O R E
Wide range of engineering solutions. With clients ranging from the semiconductor
industry to the transportation industry, ISDN has positioned itself as a one-stop shop
provider of integrated engineering solutions which are tailored to suit each clients
requirements.
FIGURE 20: SELECTED DOWNSTREAM INDUSTRIES THAT ISDN SERVES
Alternative energy Automotive Medical
ISDN supplies positioning stages and customizsed control ISDN supplies engineering solutions at the pre-assembly ISDN draws upon its global network to provide both
systems to leading solar panel processing stages to the automotive sector. Aside from providing inputs downstream and upstream applications in the medical field
equipment manufacturers. to generic products such as locks and welding applications by working with industry professionals to customise micro
in the production line, the group is also involved in putting motors and drives for surgical robots as well as insulin
together testing equipment and systems by leveraging on its pumps and collimators.
motion control capabilities.
Semiconductor Special-Purpose Machine Tools Robotics
ISDN has an established track record in providing ISDN supplies motion control solutions for highly ISDN works with the system used for
motion control products and services to the specialised machine tools such as plasma cutting manufacturing. Industrial robots are automated,
semiconductor industry. lasers and water-jet cutting equipment. programmable and capable of movement on two
or more axes.
High entry barriers. The motion control solutions and integrated engineering solutions
segments have high entry barriers due to the technicalities involved. ISDN has built
strong strategic partnerships by going into joint ventures with leading American and
European motor and gearbox manufacturers to cater to the Asian market. We note that
the business also typically requires continuous human capital investment to keep up with
new developments across different industries.
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S I N G A P O R E
FIGURE 21: ENTRY BARRIERS IN CHINA, SINGAPORE AND MALAYSIA INTEGRATED ENGINEERING SOLUTIONS MARKETS
FIGURE 22: ENTRY BARRIERS IN CHINA, SINGAPORE AND MALAYSIA MOTION CONTROL SOLUTIONS MARKETS
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S I N G A P O R E
Technical knowledge complemented by strong strategic partners. ISDNs strong

relationships with suppliers enable it to recommend and offer customers a variety of
high-quality products as solutions to serve a wide range of engineering needs.
FIGURE 23: SELECT LIST OF STRATEGIC PARTNERSHIPS
ISDN's partnership with Maxon Motor has to-date resulted in joint ventures in China and Taiwan.
Headquartered in Central Switzerland, Maxon Motor supplies high-precision drive systems to over 55
Maxon Motor countries. Its DC motors can be found in ubiquitous home appliances like watch winders to sophisticated
medical science equipment like surgical robots to autopilots in the aerospace industry. Maxons DC
motors were also part of the equipment supplied to two rovers for NASAs space mission to Mars.
ISDN Holdings and German-based Eisele Antriebstechnik GmbH began a business relationship in 2000
Eisele Antriebstechnik and sealed it with a joint venture, Eisele Asia in 2005. Their joint venture, Eisele Asia is expected to
keep up with the same quality to serve the PRC market.
The Dirak Group is headquartered in Germany with more than 37 distributors in over 40 countries
around the world and owns over 250 patents. Dirak Asia was set up in Singapore in 1997 and has built
Dirak up a strong manufacturing base in Suzhou China since 2001. With subsidiaries in Taiwan and Beijing as
well, Dirak Asia supplies solutions to Singapore, China, Indonesia and Malaysia. ISDN Holdings now
owns a 49% equity stake in Dirak Asia.
Source: Hotung Investment Holdings, UOB Kay Hian
w w w . u t r a d e . c o m . s g 16
S I N G A P O R E
Risk Factors
Foreign currency. ISDNs operations are primarily exposed to the euro, Swiss franc, US
dollar and renminbi. ISDNs financials may be impacted by unfavourable foreign
exchange rates. The group mitigates foreign currency risk through natural hedges by
borrowing in foreign currencies.
Intensifying competition. Intensified market competition on pricing and engineering
solutions can lead to a loss of customers. ISDN enjoys a first-mover advantage in the
Chinese market and has been a long-term player in the market. We think its established
brand name with good performance should continue to mitigate this concern. Moreover,
we note that ISDN has long-standing working relationships with customers in the diverse
downstream industries it serves. This will allow it to constantly keep abreast of new
developments and lead to a positive feedback loop (the longer the working relationship
and industry exposure, the more technical knowledge is accumulated, and the more
reliable is its performance).
Low margins pressure bottom line. Other than the margin pressures that come from
intensifying competition, a general downturn in the global economy (or any other event
that pressures ISDNs revenue) could also impact ISDNs bottom line due to its
businesses low margins. Nonetheless, ISDN holds a siezable cash hoard to ensure its
survival through tough times.
w w w . u t r a d e . c o m . s g 17
S I N G A P O R E
Financial Statements
PROFIT & LOSS BALANCE SHEET
Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Year to 31 Dec (S$m) 2016 2017F 2018F 2019F
Net Turnover 258.5 284.5 312.5 342.4 Fixed Asset 27.7 29.7 31.8 34.0
EBITDA 16.1 23.8 29.3 34.4 Other LT Asset 25.3 25.2 25.2 25.3
Depreciation & Amortization 2.1 2.3 2.6 3.0 Cash/ST Investment 38.7 36.4 36.3 38.6
EBIT 14.0 21.5 26.7 31.4 Other Current Asset 125.2 140.2 150.3 160.0
Net interest income/ (expense) (0.5) (0.4) (0.1) (0.1) Total Asset 216.8 231.5 243.7 257.9
JV/associate 0.4 0.4 0.4 0.5 ST Debt 13.1 10.1 10.1 10.1
Non-operating income/ 0.5 - - -
Other current liabilities 67.2 67.7 68.0 67.5
(expense)
Pre-tax profit 14.3 21.5 27.0 31.8 LT Debt 0.3 0.2 0.1 -
Tax (4.3) (6.2) (7.8) (9.2) Other LT liabilities 0.2 - - -
MI (4.9) (4.9) (6.1) (7.2) RE 121.2 137.6 147.4 158.9
Net profit (rep./act) 5.2 10.4 13.0 15.4 MI 14.9 15.9 18.1 21.5
Net profit (adj.) 8.7 11.5 13.0 15.4 Total liabilities & equity 216.8 231.5 243.7 257.9
CASH FLOW KEY METRICS

Year to 31 Dec (S$m) 2016 2017F 2018F 2019F Year to 31 Dec (%) 2016 2017F 2018F 2019F
Operating 12.4 2.8 11.6 14.9 Profitability
Pre-tax profit 14.3 21.5 27.0 31.8 EBITDA Margin 6.2 8.4 9.4 10.0
Tax (4.3) (6.2) (7.8) (9.2) Pre-tax Margin 5.5 7.6 8.6 9.3
Depre. & Amort. 2.1 2.3 2.6 3.0 Net Margin 2.0 3.7 4.2 4.5
Working Capital Changes (0.4) (15.7) (11.0) (11.5) ROA 2.4 4.6 5.5 6.1
Other Operating CF 0.6 0.9 0.9 0.8 ROE 3.7 7.2 8.2 8.9
Investing (6.1) (3.9) (4.3) (4.8) Growth
Capex (2.5) (4.3) (4.7) (5.1) Turnover 9.9 10.1 9.8 9.6
Proceeds from sale of assets 0.0 - - - EBITDA (16.4) 48.4 22.9 17.4
Dividend income 0.4 0.4 0.4 0.4 Pre-tax profit (16.7) 50.2 25.4 18.0
Others (4.0) - - - Net profit (40.9) 101.7 25.4 18.0
Financing (7.9) 0.3 (7.4) (7.8) Leverage
Dividend payments (5.4) (6.5) (7.2) (7.7) Debt to total assets 6.1 4.4 4.2 3.9
Proceeds from issuance of - 8.6 - - 9.8 6.7 6.1 5.6
shares Debt to equity
Proceeds from borrowings 10.9 10.0 10.0 10.0 Net debt/ (cash) to (18.5) (17.0) (15.8) (15.8)
shareholders' equity
Others (13.4) (11.8) (10.3) (10.1) Interest cover 29.4 60.1 262.5 345.3
Net cash (outflow)/ inflow (1.7) (0.9) (0.1) 2.3

Beginning cash and cash 39.1 37.3 36.4 36.3
equivalent
Changes due to forex (0.2) - - -
Ending cash and cash 37.3 36.4 36.3 38.6
equivalent
w w w . u t r a d e . c o m . s g 18
S I N G A P O R E
Appendix I: Business Segments

ISDN has three major business segments:
a) Motion Control. This is the groups core business with the provision of engineering
solutions.
b) Other Specialised Engineering Solutions. This segment relates to the assembly and
manufacturing of special purpose motors and gears, and the trading and distribution
of spares, components and motors.
c) Industrial Computing. This involves the assembly of industrial hardware and
software.
REVENUE BY SEGMENT
OPERATING PROFIT BY SEGMENT
w w w . u t r a d e . c o m . s g 19
S I N G A P O R E
Appendix II: Management Overview

BOARD OF DIRECTORS
Lim Siang Kai
Chairman and Independent Non-Executive Director
Mr Lim Sian Kai is currently the independent director of several other listed companies. Prior to joining the Board of ISDN, Mr Lim held various positions in banks, financial
services companies and a fund management company. He holds a Bachelor of Arts Degree from and a Bachelor of Social Sciences (Honours) Degree from the National
University of Singapore. Mr Lim also holds a Master of Arts in Economics from the University of Canterbury.
Teo Cher Koon
Managing Director and President
Mr Teo Ser Koon was appointed to the Board in 1989 and is the controlling shareholder of the group. Mr Teo is responsible for formulating the groups corporate strategy,
general management and providing technical advice. He holds a Bachelor of Engineering (Mechanical) from the National University of Singapore.
Kong Deyang
Executive Director
Mr Kong Deyang was appointed to the Board in 2001 and is in charge of all aspects of the groups business operations in China. Mr Kong holds a Degree in Optical Engineering
from Beijing Technical University. He was also awarded the Young and Middle-aged State-ranking Experts with Outstanding Contribution award by the Chinese State Council in
Jan 94.
Soh Beng Keng
Independent Non-Executive Director
Mr Soh Beng Keng is the lead independent director of Ziwo Holdings Ltd., Sino Grandness Food Industry Group Ltd and China Haida Ltd. Mr Soh holds a Bachelor of Commerce
from Nanyang University. He is also a full member of the Singapore Institute of Director and a fellow of the Institute of Singapore Chartered Accountants.
Tan Soon Liang
Independent Non-Executive Director
Mr Tan Soon Liang was appointed to the Board in 2016. He is a director of Ti Ventures Pte Ltd, Ti Investment Holdings Pte Ltd, Omnibridge Capital Pte Ltd and Wong Fong
Industries Ltd. Mr Tan holds a Bachelor of Business (Honours) Degree from Nanyang Technological University and a Master of Business Administration from University of Hull.
He is also a member of Singapore Institute of Directors and a CFA charter holder.
w w w . u t r a d e . c o m . s g 20
S I N G A P O R E
Appendix III: Value Of Integrated Engineering Solutions Market In Singapore And Malaysia
VALUE OF INTEGRATED ENGINEERING SOLUTIONS MARKET IN SINGAPORE
2.0 10.0%
1.8 9.0%
1.6 4.4% 8.0%
1.4 7.0%
5.1%
1.2 6.0%
1.0 5.0%
0.8 4.0%
0.6 3.0%
0.4 2.0%
0.2 1.0%
0.0 0.0%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
VALUE OF INTEGRATED ENGINEERING SOLUTIONS MARKET IN MALAYSIA

1.5 15.0%
1.3 13.0%
5.1%
1.1 11.0%
5.1%
0.9 9.0%
0.7 7.0%
0.5 5.0%
0.3 3.0%
0.1 1.0%
-0.1 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E -1.0%
w w w . u t r a d e . c o m . s g 21
S I N G A P O R E
Appendix IV: Value Of Motion Control Solutions Market In Singapore And Malaysia
VALUE OF MOTION CONTROL SOLUTIONS MARKET IN SINGAPORE
350.0 8.0%
300.0 4.0% 7.0%
4.8% 6.0%
250.0
5.0%
200.0
4.0%
150.0
3.0%
100.0
2.0%
50.0 1.0%
0.0 0.0%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Value of Singapore Motion Control Solutions Market (S$m) - LHS Annual Growth Rate (%) - RHS
VALUE OF MOTION CONTROL SOLUTIONS MARKET IN MALAYSIA

200.0 8.0%
5.2% 7.0%
160.0
5.7% 6.0%
120.0 5.0%
4.0%
80.0 3.0%
2.0%
40.0
1.0%
0.0 0.0%
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Value of Malaysia Motion Control Solutions Market (S$m) - LHS Annual Growth Rate (%) - RHS
w w w . u t r a d e . c o m . s g 22
S I N G A P O R E
Appendix V: Macro Economic Overview - China, Singapore, Malaysia And Indonesia

NOMINAL GDP CHINA
NOMINAL GDP SINGAPORE
NOMINAL GDP MALAYSIA
w w w . u t r a d e . c o m . s g 23
S I N G A P O R E
Appendix VI: Integrated Engineering Solutions Market Overview - China, Singapore And Malaysia
GOVERNMENT POLICIES AND KEY REGULATIONS FOR INTEGRATED ENGINEERING SOLUTIONS IN CHINA
GOVERNMENT POLICIES AND KEY REGULATIONS FOR INTEGRATED ENGINEERING SOLUTIONS IN SINGAPORE
w w w . u t r a d e . c o m . s g 24
S I N G A P O R E
GOVERNMENT POLICIES AND KEY REGULATIONS FOR INTEGRATED ENGINEERING SOLUTIONS IN MALAYSIA
w w w . u t r a d e . c o m . s g 25
S I N G A P O R E
Appendix VII: Motion Control Solutions Market Overview - China, Singapore And Malaysia
FIGURE 24: GOVERNMENT POLICIES AND KEY REGULATIONS FOR MOTION CONTROL SOLUTIONS IN CHINA
FIGURE 25: GOVERNMENT POLICIES AND KEY REGULATIONS FOR INTEGRATED ENGINEERING SOLUTIONS IN SINGAPORE
w w w . u t r a d e . c o m . s g 26
S I N G A P O R E
FIGURE 26: GOVERNMENT POLICIES AND KEY REGULATIONS FOR MOTION CONTROL SOLUTIONS IN MALAYSIA
w w w . u t r a d e . c o m . s g 27
S I N G A P O R E
Appendix VIII: Integrated Engineering Solutions Market Overview - China, Singapore And Malaysia
FIGURE 27: DRIVERS OF INTEGRATED ENGINEERING SOLUTIONS MARKET IN CHINA
FIGURE 28: DRIVERS OF INTEGRATED ENGINEERING SOLUTIONS MARKET IN SINGAPORE AND MALAYSIA
w w w . u t r a d e . c o m . s g 28
S I N G A P O R E
FIGURE 29: OUTLOOK FOR INTEGRATED ENGINEERING SOLUTIONS MARKET IN CHINA
FIGURE 30: OUTLOOK FOR INTEGRATED ENGINEERING SOLUTIONS MARKET IN SINGAPORE AND MALAYSIA
w w w . u t r a d e . c o m . s g 29
S I N G A P O R E
Appendix IX: Motion Control Solutions Market Overview - China, Singapore And Malaysia
FIGURE 31: DRIVERS OF MOTION CONTROL SOLUTIONS MARKET IN CHINA
FIGURE 32: DRIVERS OF MOTION CONTROL SOLUTIONS MARKET IN SINGAPORE AND MALAYSIA
w w w . u t r a d e . c o m . s g 30
S I N G A P O R E
FIGURE 33: OUTLOOK FOR MOTION CONTROL SOLUTIONS MARKET IN CHINA
FIGURE 34: OUTLOOK FOR MOTION CONTROL SOLUTIONS MARKET IN SINGAPORE AND MALAYSIA
w w w . u t r a d e . c o m . s g 31
S I N G A P O R E
MONEY TALK
Bloomberg Consensus
Recommendation Buy Sell Hold Valuation Ratios 12/15 12/16 12/17E 12/18E
5/31/2017 100% 0% 0% P/E 8.3 15.5 10.7 10.2
Target Price 0.32 EV/EBIT 4.0 4.6 - -
Upside 36% EV/EBITDA 3.5 4.1 4.1 3.9
P/S 0.3 0.3 0.3 0.3
Income Statement 12/15 12/16 12/17E 12/18E P/B 0.6 0.7 - -
Revenue 235 259 282 296 Div Yield 2.0% 1.3% 1.7% 2.1%
Gross Income 66 65
Operating Income 17 15 Profitability Ratios %
Pretax Income 17 14 20 22 Gross Margin 27.9 25.1 - -
Net Income Adjusted* 9 5 9 9 EBITDA Margin 8.2 6.6 7.4 7.4
EPS Adjusted 0.03 0.02 0.02 Operating Margin 7.2 5.9 - -
Dividends Per Share 0.00 0.00 0.00 0.01 Profit Margin 3.7 2.0 3.0 3.1
Payout Ratio (%) 16 21 18 22 Return on Assets 4.4 2.4 6.3 -
EBITDA 19 17 21 22 Return on Equity 7.5 4.3 6.4 6.4
Peer Comparison Ticker Price @ Market -----PE----- -----P/B----- Yield
7 Jun 17 Cap FY17F FY18F FY17F FY18F FY17F
(lcy) (US$m) (x) (x) (x) (x) (%)
Hi-P International Ltd HIH SP 1.02 595.64 12.1 11.5 1.3 1.2 1.0
Sunningdale Tech Ltd SUNN SP 2.11 287.51 11.5 10.6 1.1 1.0 3.3
Fu Yu Corp Ltd FUYU SP 0.20 109.12 14.3 10.0 0.9 0.9 9.0
Valuetronics VALUE SP 0.835 253.5 12.4 10.9 2.0 1.8 4.4
Memtech International MTEC SP 0.975 99.53 11.8 10.1 0.9 0.8 4.2
Average 12.4 10.6 1.2 1.1 4.4
ISDN Holdings Ltd ISDN SP 0.225 64.35 7.7 6.8 0.6 0.5 2.9
w w w . u t r a d e . c o m . s g 32
S I N G A P O R E
Disclosures/Disclaimers
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S I N G A P O R E

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

MONEY TALK BUY

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Generally, the company is recognising the need for marketable innovations to

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Source: The Boston Consulting Group

Source: Federal Statistical Office of Germany, The Boston Consulting Group

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Integrated engineering solutions in China to grow at 2015-20 7.6% CAGR. Other

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

FIGURE 6: VALUE OF INTEGRATED ENGINEERING SOLUTIONS MARKET IN CHINA

Source: Frost & Sullivan

3.5 7.9% 20.0%

Source: Frost & Sullivan

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Source: Mercator Institute For China Studies

CRRC is de facto manufacturing king of Chinas railway vehicles; key beneficiary

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Business Outlook: Healthy Core Business Riding On Semiconductor Recovery

Source: Frost & Sullivan Source: Frost & Sullivan

Source: ISDN, UOB Kay Hian

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

FIGURE 12: NASDAQ PHLX SEMICONDUCTOR INDEX (SOX)

Source: World Semiconductor Trade Statistics

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

FIGURE 14: SINGAPORE-MALAYSIA HIGH-SPEED RAILWAY PREFERRED ALIGNMENT

Source: LTA, The Straits Times, UOB Kay Hian

Energy business: No near-term visibility. We note the current challenging

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Financials: 44% Attributable Profit CAGR In 2016-19

Source: ISDN, UOB Kay Hian

Source: ISDN, UOB Kay Hian

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Company Background: 30-Year Veteran With Diversified Experience

Global network. Headquartered in Singapore, ISDN operates through 65 subsidiaries

Source: ISDN, UOB Kay Hian

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Semiconductor Special-Purpose Machine Tools Robotics

Source: ISDN, UOB Kay Hian

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Technical knowledge complemented by strong strategic partners. ISDNs strong

Source: Hotung Investment Holdings, UOB Kay Hian

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

CASH FLOW KEY METRICS

Net cash (outflow)/ inflow (1.7) (0.9) (0.1) 2.3

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Appendix I: Business Segments

Source: ISDN, UOB Kay Hian

OPERATING PROFIT BY SEGMENT

Source: ISDN, UOB Kay Hian

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Appendix II: Management Overview

R e t a i l M a r k e t M o n i t o r Thursday, 15 June 2017

Source: Frost & Sullivan