Shenzhen goes into lockdown
? According to The Straits Times, China has put Shenzhen under a citywide
lockdown to combat Covid-19.
? Under our coverage, Aztech and Nanofilm are the companies with extensive
production facilities in China.
? Although ISDN is not directly affected, it depends on China for 74% of sales
and there could be short-term disruptions.
Covid-19 outbreak in China
? The Straits Times on 13 Mar 2022 reported that China’s tech hub of Shenzhen came
under a citywide lockdown on Sunday (13 March) and Shanghai has ordered residents
to avoid all but essential travel as well as closed schools to contain the spread of the
Covid-19 virus.
? According to China’s National Health Commission, a total of 3,393 cases were reported
on Saturday, which was almost double that of Friday’s 1,524 cases.
? On 7 March, Hong Kong-listed IDT International (167 HK, Unrated) announced that its
factory in Shenzhen will temporarily discontinue production with effect from 5 March
2022 due to the Covid-19 pandemic.
Aztech (AZTECH SP, Add, TP S$1.59)
? Aztech’s factories are in Dongguan, China, which is near Shenzhen.
? Aztech plans to build a new facility in Malaysia to offer customers’ more flexibility in their
production planning.
? Retain Add rating and a P/E (target multiple – 12.0x) based TP of S$1.59
? Downside risks to our call are component shortages and Covid-19-related supply chain
disruptions (complete factory shutdowns in China if Covid-19 infections are discovered
cannot be ruled out).
ISDN Holdings Ltd (ISDN SP, Add, TP S$0.96)
? As at 31 Dec 2020, ISDN owned an industrial base with a gross floor area of
approximately 40,657 sq m in an industrial park in Wujiang district, Suzhou, Jiangsu
province in China, where it makes a range of products such as hinges and locks,
precision gearboxes and other industrial hardware.
? In its FY21 results press release, ISDN announced plans (in response to sustained
demand from customers) to construct another building in its China Industrial Park
campus, which could lead to an estimated 39% increase in gross floor area at the
campus [by end FY22F if construction is on schedule.
? In our view , the current Covid-19 situation is not likely to affect ISDN directly but there
could be delivery delays if its customers are affected. China accounted for 74% of
ISDN’s FY21 revenue.
? Retain Add rating and a P/E (target multiple – 12.3x) based TP of S$0.96.
? Downside risks include a prolonged Covid-19 outbreak, leading to travel restrictions that
could affect ISDN’s ability to service its customers.
Nanofilm Technologies Int’l Ltd (NANO SP, Add, TP S$3.50)
? Nanofilm’s main factories are located in Shanghai, China. As at 23 Feb 2022, Nanofilm’s
Shanghai factories occupied a gross floor area of 101,590 sq m.
? Plant shutdowns will have a negative short-term impact as Nanofilm has no other
factories of scale elsewhere. If shutdowns occur, Nanofilm will have to catch up on
production once operations normalise.
? Historically, revenue and hence production tend to be second-half-loaded. Hence, any
potential 1H22 disruptions may be less severe.
? Retain Add rating and a P/E (target multiple – 23.3x) based TP of S$3.50.
? Downside risks are customer concentration, persistent component shortages and
inability to find customers in new segments for its coating solutions.