SAC Capital analysts Daniel Ng and Matthias Chan like ISOTeam after its “strong” performance for the 1HFY2024 ended Dec 31, 2023. For the six-month period, ISOTeam reported earnings of $1.4 million, 34% higher y-o-y, and revenue of $62.7 million, 16.5% higher y-o-y.
The improved set of figures were mainly due to the group’s divestment of its non-core businesses in December 2022 and its sharper focus on its core construction-related segments. The group’s key segments saw broad-based growth in revenue, which more than offset the decline in ISOTeam’s “others” segment.
“It’s noteworthy that ISOTeam’s net profit for 1HFY2024 has already surpassed the net profit recorded for the entire FY2023, standing at $1.3 million. This achievement underscores our optimism regarding ISOTeam’s outlook for FY2024, anticipating a continuation of this upward trajectory,” write Ng and Chan in their non-rated report dated April 30.
ISOTeam’s focus on its core competencies in repair and redecoration (R&R) and addition and alteration (A&A) has brought about “tangible results”, which is evident in its order book growth, note the analysts. As at April the group’s order book stood at $184 million, its highest since June 2021.
“As lower margin pre-Covid projects near completion, ISOTeam is poised to benefit from higher-margin projects tendered, supporting its operations until June 30, 2025. This anticipated increase in margin across ISOTeam’s business segments is a promising indicator of future profitability,” say Ng and Chan.
“Furthermore, ISOTeam’s strong balance sheet provides a solid foundation for its operational and expansion needs,” they add. “The group’s cash and bank balances have seen a notable increase, rising to $11.3 million from $6.8 million over a year ago.”
See also: UOBKH calls Centurion Corp a stock for ‘growth-minded investors’
To this end, the analysts see the group as being “well-positioned” within the rebound in the local construction and built environment, “aligning with positive industry forecasts”.
According to the Building and Construction Activity (BCA), there seems to be a steady uptrend in the demand for construction with projections extending to 2028.
“The backlog of projects, including neighborhood renewal programs, repair and refurbishment projects exacerbated by the disruptions of the Covid-19 pandemic, is now poised to fuel a surge in tender invitations,” the analysts note.
See also: With 300MW wind-solar project win in India, Sembcorp at 64% of 2028 renewable energy goal: CGSI
“Additionally, ISOTeam believes that with the upcoming Singapore general elections, the Singapore government is expected to carry out more infrastructure upgrades and development projects. As a key player in such upgrading works in public projects, ISOTeam stands to capitalise on these opportunities,” they add.
Other pluses in Ng and Chan’s book include ISOTeam’s investment in artificial intelligence (AI) drone painting technology, which reduces its reliance on labour and addresses rising manpower costs.
Its favourable dividend policy, where the group plans to distribute at least 25% of its earnings for FY2024 and at least 30% in FY2025, reflects ISOTeam’s positive outlook, the analysts add.
Amid the positives, one notable risk identified is the rising manpower and material costs as well as the high interest rate environment, which may affect the cost of borrowing. However, the analysts note that the group has made “concrete steps” to tackle such issues.
“For example, to cope with future uncertainty in rises in manpower costs such as the recent reduction of foreign worker quota from 1:7 to 1:5 in the construction sector, ISOTeam’s involvement in the development of autonomous painting drones reduces reliance on labour,” they write.
As at ISOTeam’s share price of 4.4 cents on April 30, the group is trading at 8.5 times P/E and 0.8 times P/B.
Shares in ISOTeam closed flat at 4.3 cents on May 6.
