UOB Kay Hian (UOBKH) analysts has identified ISOTeam 5WF as a niche contractor with earnings turnaround as well as a beneficiary of the upcoming Singapore election in its October 13 unrated report.
ISOTeam is an established building maintenance and estate upgrading player in Singapore, with multi-disciplinary capabilities. It has two decades of experience in main business areas of repairs and redecoration (R&R) as well as addition and alteration (A&A) services.
To date, ISOTeam has undertaken more than 800 refurbishment projects for over 7,200 buildings. The company offers other services through its subsidiaries, ranging from coating and painting; mechanical and electrical works; and interior designing.
Aside from introducing eco-conscious solutions ahead of its competitors, ISOTeam also has recently ventured into the usage of artificial intelligence for drone painting and inspection. This allows it to improve productivity, safety and reduce manpower costs.
The analysts note that many projects undertaken by ISOTeam are driven by legislation, which provides a recurring demand. These include a five-year R&R project cycle for all HDB blocks; the Neighbourhood Renewal Programme every 12 to 15 years; Building and Construction Authority checks every seven years; as well as the ongoing upgrading of hawker centres and parks.
“Currently, 85% of ISOTeam’s revenues come from recurring governmental businesses. It is confident of a steady demand for its services with an influx of new projects by regulatory bodies focusing on eco-conscious elements in R&R and A&A projects where ISOTeam has an edge in,” the analysts add.
Moving forward, ISOTeam is poised to benefit from a strong order book priced at better margins, which provides good earnings visibility. Its latest order book of $194 million as at August 3 is at a 10-year record high and will be progressively delivered by FY2026.
“We understand that these orders are priced at better gross margins that are around pre-Covid-19 level of 15-20%, relative to legacy contracts with gross margin of around 10%, as the drag from low-margin legacy contracts during the pandemic have been fully delivered,” the analysts point out.
After three years of losses, ISOTeam is back to profitability with FY2023 net profit at $1.3 million. It is also witnessing strong contract win momentum, with $153.4 million new jobs secured in a year as at August.
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The company is positive that the upcoming general election in its FY2025 will keep the number of new projects high. Additionally, the company’s recent rights issue, which raised $10.3 million could help it tender for more new projects.
In its latest dividend policy announcement, ISOTeam has raised its dividend payout ratio to at least 25% for FY2024 and at least 30% for FY2025, the analysts highlight. Based on this, its FY2025 dividend yield according to Bloomberg consensus estimates of $6 million in earnings would equate to a yield of around 6.2% based on a share price of 4.2 cents.
ISOTeam is currently trading at 7x FY2024 and 5x FY2025 PE, based on Bloomberg consensus estimate.
As at 10.24am, shares in ISOTeam are trading at an unchanged 4.2 cents.
