SINGAPORE (May 17): ISOTeam on May 11 announced that its 3Q18 earnings have dropped by 52% to $0.48 million from $1.0 million in 3Q17.
This brought 9M18 earnings to $3.88 million, 23.5% lower than $5.07 million recorded in 9M17.
Revenue for the quarter declined by 10.6% to $14.7 million from $16.5 million a year ago, bringing gross profit to 20.0% lower y-o-y at $3.22 million.
The decrease in revenue was mainly due to decrease in revenue of Repairs & Redecoration (R&R), Addition & Alteration (A&A) and Coating & Painting (C&P) business segments, which was affected by lesser work done performed during the period and partially offset by increase in revenue of Others business segment.
Anthony Koh, executive director and CEO of ISOTeam says, “Moving forward, we will continue to focus on larger scale public sector R&R and A&A projects where we have competitive edge. We believe that our impeccable record for quality and on-time delivery will work to our advantage given BCA’s implemented Price Quality Method 1 that increases the weightage for the quality component.”
Following the results announcement, RHB is maintaining its “buy” call on ISOTeam with a lowered target price of 42 cents.
Along with its peers, the group has been impacted by industry weakness, resulting in fewer projects being executed across its three main segments and hence a drop in its revenue.
However, the group’s orderbook remains healthy at $84.4 million, which is to be progressively delivered over the next two years. The group also expects to add on to its orderbook with a few larger project tender results that will be announced over the next few months.
In addition, the group on Mar 21 proposed to dispose a 34.1% stake in its wholly-owned subsidiary ISO-Integrated M&E to Taisei Oncho Co (TOC) for $3.0 million.
This sale also paved the way for the two parties to enter into a joint venture (JV).
In a Thursday report, analyst Jarick Seet says, “The proposed agreement would allow ISOTeam to strengthen its M&E and energy management capabilities, as well as further expand its services in the region – this would be done by leveraging on TOC’s M&E expertise and overseas network.”
Despite the group’s weaker 3Q18 due to lower-margin projects, the analyst expects 4Q18 to make up for the shortfall, due to higher-margin larger projects that are to be recognised in 4Q18, along with reduced costs from the centralisation of all subsidiaries into its Changi premises.
The group is also likely to enjoy one-off gains from the sale of its old office, as well as divestment gains from the upcoming divestment of its M&E arm.
“We also think it is an attractive acquisition target by firms that are keen to add recurring revenue in the construction space into their P&L statements,” adds Seet.
As at 3.12pm, shares in ISOTeam are trading at 36 cents, giving it a FY18 price-to-book ratio of 0.75 with a dividend yield of 1.6%.
