RHB Group Research analyst Jarick Seet has upgraded ISOTeam to “buy” with an unchanged target price of 12 cents as he believes the worst is “finally over” for the company.
The upgrade comes after a “tough” FY2021 and FY2022 ended June, with ISOTeam being hit by a one-off impairment as well as lower margins on the back of a sudden surge in operating and raw material costs in the FY2022.
For FY2023, ISOTeam has managed to secure contracts with appropriate margins, accounting for the rise in labour and raw material costs. In his report, Seet writes that ISOTeam’s new contracts would have a “much better” pricing and margins after factoring in the surge in costs for labour and raw materials.
He notes that the company’s previous contracts were unprofitable due to the unexpected surge. The surge had, at the time, also affected ISOTeam’s gross profit margin (GPM), resulting in the company’s net loss of $10 million in the FY2022.
As at June 30, ISOTeam reported a strong orderbook of $160.2 million with projects expected to support the company’s activities through FY2024.
“A good portion comprised projects that were secured post-Covid-19 at an appropriate pricing strategy. ISO has further lifted its orderbook with additional contracts totalling $49.8 million, which it announced on Aug 22,” Seet points out.
See also: RHB downgrades ISOTeam’s rating to 'neutral' with lowered TP of 12 cents
As the company continues embracing new technologies and digitalisation efforts to improve its productivity and efficiency, Seet sees a brighter outlook ahead for ISOTeam.
On the back of the new contracts for the FY2023, including the company’s continued prioritisation in conserving cash and controlling costs, the analyst expects profitability to return.
“In addition, most of the kitchen sinking and write-offs exercises have likely been incurred and should be absent in FY2023,” he writes.
As at 2.16pm, shares in ISOTeam are trading flat at 9.7 cents.
