ISDN Gears Up for Growth in Automation Era

Date: June 8, 2017

kopi-C: the Company brew

ISDN Holdings Ltd

SGX Code I07
Mkt Cap S$M 85
% Price Change YTD -8.9
% Price – Div Adj. YTD -7.6
% Price – Div Adj. [1 Year]
% Price – Div Adj. [3 Years]
% Price – Div Adj. [5 Years] 82.4
Price vs. 12M High %
Price vs. 12M Low %
Div Yld 1.5
% ROE 4.3
P/E 8.8
P/B 0.6

Source: SGX StockFacts (17 May 2017)

Growing up, one of Teo Cher Koon’s most vivid memories was of a cargo ship’s engine room, with its hot, sweaty atmosphere and the constant hum of machinery.

“My father was a marine engineer, and I used to follow him on board the vessel to watch him work,” recalled Teo, President and Managing Director of ISDN Holdings Ltd, an engineering solutions company listed on both SGX and HKEx.

“Because of his influence, I became a mechanical engineer.”

Teo, who holds a Bachelor of Mechanical Engineering degree from the National University of Singapore, has amassed about three decades of experience in the motion control and industrial computing industries. His first foray into this field involved the supply of servo motors.

“Two friends started a company called Servo Dynamics in 1986, and after I graduated, they encouraged me to join them. After two years, I bought them out,” he said.

Servo motors are motors equipped with a feedback system to rotate or position parts of a machine with great precision. They can be found in a host of devices and applications, including semiconductor production lines, industrial machinery, robots, surgical and medical devices, as well as printing and textile machines.

ISDN Holdings Ltd – where ISDN is an acronym for International Servo Dynamics Network – was listed on the Mainboard of Singapore Exchange in November 2005. It obtained its dual listing on the Stock Exchange of Hong Kong in January this year. The Group has a market capitalisation of about S$85 million and HK$446 million on the respective bourses.

“It was always my dream to go public, but I didn’t think that we would be able to come this far,” Teo said.

“From about 20 subsidiaries when ISDN listed on SGX, we have grown into a group of more than 60 companies as at the end of last year. And our Hong Kong listing has opened another door – it provides us with access to a different capital market, and the opportunity to boost our profile internationally.”

China’s Economic Transition

Headquartered in Singapore, ISDN comprises 66 subsidiaries with sales offices spanning the region – China, Taiwan, Hong Kong, Malaysia, Vietnam, Thailand and Indonesia.

Over the last 30 years, the Group has evolved into a multinational, one-stop shop for engineering solutions. Its offerings include customised design and assembly of motion control systems – such as high-tech hinges, locks and fasteners, as well as precision gearboxes. These systems are typically used for factory automation in a broad range of industries, including semiconductor, mobile communications, telecommunications, data centres and railways. 

ISDN also formulates and assembles various industrial computing hardware and software products to meet specialised customer needs.

“It was just a two-man show when we first started – me and a clerk. Today, we have nearly 850 employees, of which nearly half are sales and engineering staff, and our customers number more than 8,000,” Teo said.

“In our first year, we chalked up S$200,000 to S$300,000 in revenue. By 2014, we had crossed the S$200 million mark.”

By end of 2016, ISDN had achieved record revenue of S$258 million, and a net profit of S$10 million. The bottom line would have been S$13.2 million, if not for expenses incurred in its Hong Kong listing.

The Group’s business focus remains predominantly in China, which accounted for 70% of group revenue in 2016. Hong Kong contributed 5.8%, while Malaysia and Singapore accounted for 2.4% and 14.3% respectively. 

“There’s huge potential in North Asia, as China transitions from a labour-intensive economy to a high-tech one. The domestic economy may have slowed, but the next growth leap is definitely coming,” Teo said.

The operating landscape in this part of the world presents both challenges and opportunities, he noted. Competition has intensified as the range of solutions increases and more players enter the fray.

Rise of the Machines 

Meanwhile, the trend of automation in China’s industrial sector continues to gather pace. The government’s “Made in China 2025” plan, which promotes Industrial 4.0 concepts and robotic applications, has encouraged Chinese companies to move up the technology chain. 

This has spurred upgrading of manufacturing processes through increased use of robotics, which in turn has stoked demand for motion control and other specialised engineering solutions. The sectors experiencing robust growth include mobile e-commerce, mobile technologies, as well as electric vehicles, and the batteries that power them, he added.

According to Zion Market Research, the global motion control market was valued at US$16.5 billion in 2016. It is expected to generate revenues of US$22.8 billion by end of 2022, growing at a compounded annual rate of more than 5.7% between 2017 and 2022.

Asia Pacific’s motion control market dominated overall demand last year, and is the fastest-growing region, due to rapid industrialisation in developing economies such as India, China and Indonesia, the market research firm said.

“The use of motion control technology in medical, energy and infrastructure sectors is increasing, while prospects in the smartphone segment remain robust – there’s still a fairly long runway,” Teo noted.

And ISDN’s broad customer profile – ranging from the smartphone and semiconductor industries to the medical, oil and gas, textiles and packaging sectors – helps the group diversify exposure and mitigate cyclical swings in any segment, he added.

Apart from China, ISDN will continue to expand its footprint in Southeast Asia, building on opportunities in Indonesia, Thailand, Vietnam and Laos.

“Southeast Asia offers enormous potential, and is part of China’s ‘One Belt, One Road’ strategy. Many Chinese state-owned enterprises are constantly looking for opportunities in this region, particularly in infrastructure projects.”

Harnessing Hydropower 

In Indonesia, ISDN is focusing on hydropower. It has amassed a combined installed base capacity of 180 megawatts (MW) for its portfolio, with 130 MW located in North Sumatra, and more than 40 MW situated in Sulawesi.

The company has started constructing two mini hydropower plants in North Sumatra, and expects to begin building a third in North Sumatra, and a fourth in Sulawesi, by year-end. The biggest of these plants, with a capacity of 4.6 MW, will be commissioned in early 2018. The other three plants, each with a 10-MW capacity, will be ready by 2019. 

“The essence of hydropower lies in motion control – controlling water to turn it into energy. Hydropower is a mature technology, and a natural progression for us,” Teo said. 

Indonesia’s hydropower potential is estimated at about 75,000 MW, with untapped resources concentrated on the islands of Sumatra, Java and Sulawesi, according to data from the International Hydropower Association. 

Hydropower development will be driven in part by the government’s target to raise the share of renewable energy production to 15% from 7% of generating capacity by 2025, data from market entry services firm Emerhub showed. The current installed capacity for all hydro plants is more than 4,000 MW, or just over 5% of the total hydro energy potential.

In February, to boost funding sources for its push into hydropower generation as well as strategic technology partnerships in its core motion control and engineering services division, ISDN took a 50% stake in corporate finance firm Emmett Capital Pte Ltd. 

“This provides us with financing options for different stages of our business development efforts, and allows us to share resources with our partners, in particular, local SMEs that are hungry for capital to fund innovations and international expansion,” Teo said.

Looking ahead, challenges abound, but worry is not a word in Teo’s vocabulary. “There can be 1,001 things to worry about, at any moment of every day,” he grinned.

“The marketplace is so dynamic, you don’t know what’s going to happen next. You can plan and invest, but things may not turn out as you expect. Our group is well-diversified – we don’t have all our eggs in one basket, and this will cushion against any negative surprises.”

Even when out of the office, the 58-year-old is constantly mulling prospects and strategies. “I spend a lot of time thinking about our next steps, and how to grow the organisation. Once we stop growing, that will be the beginning of our deterioration, and the end.”

Values that resonate most with Teo, who has a daughter, 14, and a son, 18, include being true to yourself, doing your utmost and pushing your limits.

“Nowadays, one cannot afford to just do one thing in life – you need to be versatile, because the market is changing too quickly,” he noted. 

“We must continue to evolve with the market. We cannot stand still, or we will become obsolete.”

Financial Results

Year ended 31 December (S$ ‘000) 2016
2015 2014 2013

Revenue 258,502 235,299 230,518 164,852

Profit before income tax 14,331 17,213 15,237 9,201

Profit attributable to equity holders 5,153 8,721 7,457 4,754

Quarter ended 31 December (S$ ‘000) 4Q 2016
4Q 2015  % Change

Revenue 67,059 51,598 30.0  

Profit before tax 6,009 2,755 118.1  

Profit attributable to equity holders 2,924 1,809 61.6  

Source: Company data

Brokers’ Ratings   Price Chart

Buys 1

Holds 0

Sells 0

Consensus PT $0.32

Source: SGX Stockfacts

Outlook & Risks

  • We expect the overall industry landscape to remain competitive against the backdrop of a Chinese economy that is transitioning to a more automated industrial environment, from one that has been traditionally labour-intensive. This is expected to be good news for our motion control and other specialised engineering solutions businesses, which provide parts and solutions for factory automation and robotics.
  • We seek to build on this competitive edge and expand our market share by continuing to engage customers more proactively at the ground level and up. This customised approach will allow us to offer solutions with a greater technological edge and enhanced value, placing us in good stead as Chinese manufacturers increase emphasis on product quality and make further inroads into international markets. 
  • We envision the motion control solution sector will continue to account for the bulk of Group revenue, and sales from the PRC will remain strong.
  • We aim to focus on certain fast-growing industries nurtured by government policies and natural economic needs, for example, sectors related to “Industrial 4.0” concepts. This includes the “Made in China 2025” policy promulgated by the PRC government. It is expected that such policies and trends will boost development and use of robotics, as well as general technological upgrades of manufacturing processes. These will in turn benefit motion control and other specialised engineering solutions. 
  • Our focus will still be the PRC and Singapore markets, which accounted for more than 84% of our revenue in 2016. We will also continue to expand our business in Southeast Asia after gaining a foothold in Vietnam and Thailand. We will continue to develop new frontiers, including but not limited to the emerging markets in Southeast Asia, to explore new business opportunities. 

ISDN Holdings Ltd

Founded in 1987 as a precision and motion control engineering services provider, and listed on Singapore Exchange’s Mainboard since 2005, ISDN has today transformed into a multi-industry corporation with diverse strengths. With more than 90 offices spanning key Asian growth markets, ISDN’s business interests now include, in addition to engineering, the energy and agriculture sectors. Dominant in the niche area of motion control and industrial computing, ISDN’s customised solutions cater to different industrial sectors, including medical, robotics, factory automation, oil and gas, water treatment, manufacturing, and semiconductor industries. By leveraging on its alliances with strategic partners in Europe, Asia and Australia, ISDN is able to benefit from the best-in-class technology and business systems that these collaborations offer.

The company website is:

Click here for the company’s Stockfacts page.

For fourth quarter ended 31 December 2016 financial results, click here

First published on 19 May 2017 on

Text: Jennifer LH Tan
Photo: Company file

kopi-C is a regular column on SGX’s My Gateway website that features C-level executives of leading companies listed on the Singapore Exchange. These interviews are profiles of senior management aimed at helping investors better understand the individuals who run these corporations.

For previous editions of kopi-C: the Company brew, please click here.