SAC Capital analysts Daniel Ng and Matthias Chan have kept their “buy” call on ISOTeam as they see “negligible impact” on the company after the drone crash at One-North Residences.
The Civil Aviation Authority of Singapore (CAAS) suspended the drone operations of H3 Dynamics Holdings after one of its drones crashed on the grounds of the condominium. According to mainstream media, H3 Dynamics was conducting a series of flights with the Hexadone TUNDRA 2 at the One-North drone estate, over the Pixel building. A full investigation is underway after preliminary findings showed that it was a positioning sensor malfunction.
“After discussions with the management, we agree that the impact on ISOTeam is negligible,” write Ng and Chan in their July 23 report.
Since the company’s collaboration with H3 Dynamics to conduct drone facade inspection projects in October 2021, ISOTeam has obtained its own operator permit for facade inspection drones.
“Notably, the drone in question, Hexadrone TUNDRA 2, is not used in ISOTeam’s façade inspections,” say the analysts.
As such, despite the temporary suspension of H3 Dynamics Holdings, ISOTeam can continue its inspection services thanks to its own operator permit.
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No further significant interruption in its facade inspection services is expected, in the analysts’ view.
Despite any “potential inconveniences”, the analysts maintain a positive outlook on the company with a target price of 7.3 cents.
This comes on the back of the company's position at the forefront of technological advancement in its sector and its strong track record in public sector projects in Singapore.
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Following “optimistic” macroeconomic environment conditions, construction demand in Singapore is expected to steadily improve, ranging from $31 billion and $38 billion from 2025 to 2028, with the public sector contributing about 60% of the demand.
Additionally, the analysts note that Housing Development Board (HDB) upgrading cycles and neighbourhood renewal programs are providing a consistent stream of income, complemented by a backlog of projects resulting from Covid-19 disruptions and anticipated infrastructure upgrades ahead of the upcoming Singapore general elections.
However, downside risks identified by the analysts include authorities taking a more prudent stance and requiring more stringent processes for drone operators; and a possibility that all drone activities are temporarily suspended.
That said, they note that such a suspension is unlikely to last beyond months and would have a negligible impact on ISOTeam, as facade inspections account for only a small percentage of its revenue.
“Additionally, we forecast the highly anticipated autonomous AI-painting drones to only start its contribution in FY2025, and as such our current projections remain unchanged,” conclude the analysts.
At the same time, Maybank Securities analyst Jarick Seet has issued an unrated report dated July 24, noting the company’s post-pandemic recovery.
In the 1HFY2024 ended Dec 31, 2023, Isoteam 5WF returned to profitability, with an increased revenue of 16.5% y-o-y to $62.7 million. Its patmi for the six month period rose by 34% y-o-y to $1.4 million.
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“Most importantly, management says the lower-margin or loss-making projects secured during the pandemic have all been completed,” says Seet.
ISOTeam, which announced contract wins valued at $21.4 million on June 28, also revealed its orderbook of $182.4 million, signaling an improved outlook, according to management.
These developments have brought the company’s margins into steady recovery, with gross margins improving from 9.3% in 1HFY2023 to 13.3% in 1HFY2024, boosting management’s confidence of a “stronger” trajectory ahead.
Additionally, the Maybank analyst notes that ISOTeam has since implemented a dividend policy of at least 25% and 30% of net profit after tax (NPAT) for FY2024 and FY2025, respectively.
This comes alongside a capital reduction exercise of $25 million being proposed to write-off its accumulated losses.
“Management is also confident of a rebound to profitability now that the low-margin legacy projects have been completely flushed out,” adds Seet.
The analyst also sees the company’s potential with drones as “interesting”
ISOTeam has started deploying drones at more than 800 HDB blocks to conduct facade inspections.
It is also launching its autonomous paint drone at the end of the year which is estimated to be 30% - 40% more cost effective in comparison to traditional labour to paint due to the usage of fewer labour hours as well as gondolas and other heavy equipment.
As at 11.18am, shares in ISOTeam are trading at 0.1 cents lower or down 1.67% at 5.9 cents.
