SINGAPORE (Aug 30): ISOTeam ended FY19 on a high, as it reversed out of the red on the back of higher revenue. Now, the building maintenance and estate upgrading company looks poised to ride a wave of strategic acquisitions to continue its growth trajectory.
The group saw its FY19 earnings surge 14-fold to $6.8 million, as full year revenue jumped 63% to $136.6 million.
All of the group’s segments recorded double-digit growth figures on the back of an increase in the number of projects as well as higher value projects such as the new nightclub at Marina Bay Sands.
A breakdown of the topline revealed that revenue from the Addition and Alteration (A&A) segment saw the most improvement in earnings, or an increase of 87% y-o-y. This was further bolstered by the Repairs & Redecoration, Coating & Painting and Others segments, which recorded revenue increases of 37.9%, 45.0% and 52.6% respectively.
FY19 earnings were also boosted by a 67.2% increase in other income to $3.1 million due to fair value gain on investment.
The board has recommended a final dividend of 0.42 cent per share for FY19, more than double of the final dividend of 0.18 cent paid a year ago.
See: ISOTeam swings back into the black in 4Q19 on higher sales
ISOTeam’s recent strategic acquisitions seem to have played a vital role in its turnaround.
For a start, the group recently acquired a clutch of six companies from project and construction management services business Pure Group for $24 million.
With a presence in the Philippines, China, Malaysia and Thailand, this opened ISOTeam’s doors to markets beyond Singapore.
See: ISOTeam makes $24 mil acquisition of Pure Group to bolster regional foothold
Analysts perceived this acquisition to be a “profit guarantee” as the earn-out formula entailed earnings contributions of $3 million in FY20 and $5 million in FY21.
In addition, ISOTeam also recently acquired bicycle assets from Mobike, through its 51% wholly-owned subsidiary SG Bike. ISOTeam is looking to add 25,000 bicycles through this acquisition, a significant boost to its existing fleet of 3,000 bikes.
While management noted that the current fleet of SG Bike is still breaking even at an operational level, a scale-up in fleet size can help to circumvent fixed costs already in place. Overall, the enhanced fleet will make SG Bike the dominant player in the market.
Meanwhile, analysts are expecting the group’s R&R projects to pick up in volume leading to the election, following the Home Improvement Programme (HIP) in 2020. This is likely to bring about an increase in the group’s current order book, which stands at $113.5 million.
Moving forward, market watchers are bullish on ISOTeam’s ability to stay out of the red as growth seems to be intact thus far. Its recent strategic acquisitions are expected to allow more room to grow, while government initiatives are also likely to benefit the group.
RHB Group Research is maintaining its “buy” call on ISOTeam with a target price of 31 cents, as analysts appear to believe that things can only get better for the group from here. According to lead analyst Lee Cai Ling, the group will also be a beneficiary of the $9 billion investment in Singapore’s integrated resorts at Marina Bay Sands and Resorts World Sentosa.
“We see ISOTeam as a beneficiary of their expansion programmes, given the acquisition of the project manager of MBS – Pure – as well as its track record in completing a series of food outlets and a nightclub worth $46.5 million for the resort. ISOTeam also has a past working relationship with RWS,” says Lee.
According to Lee, the group is likely to move up the industry value chain from an existing upgrading contractor to a turnkey one – which will open up more opportunities for the group in the future.
“Extending its value chain by acquiring MBS’ existing project manager blends well with the government’s plans. The order book remains robust at $113.5 million, and we are expecting more orders to come in the next couple of months,” adds Lee.
Similarly, UOB Kay Hian is maintaining its “buy” call on ISOTeam with an unchanged target price of 34 cents, as the group’s larger market share and acquisitions are poised to boost earnings in the near future.
“Recent acquisitions are strategic in nature to enhance the group’s home presence, including securing a larger market share in bike sharing and extending into project management works in the region,” says lead analyst Lucas Teng.
In particular, Teng favours the acquisition of business units in Pure Group, calling it a “positive move to attract better margins”.
“The acquisition also allows ISOTeam to deal with high-value and fast-track regional projects in the private sector, diversifying their expertise and moving up the value chain,” adds Teng.
As at 4.18pm, shares in ISOTeam are trading flat at 23 cents, or 8.5 times FY20F earnings and a dividend yield of 2.2%, according to UOB valuations.
