Excerpts from analyst's report
OSK-DMG analyst:Sarah Wong & Terence Wong, CFA
Acquiring new trades and skill sets. ISOTeam is acquiring four companies in cash-equity deals totalling SGD11m. They are:
i) Accom International Pte Ltd – a rental provider of more than 166 construction and renovation equipment that include boom and scissor construction lifts;
ii) Accom Pte Ltd – a repairs & redecoration (R&R) specialist in the private-commercial sector;
iii) Industrial Contracts Marketing (2001) Pte Ltd – an application specialist in special architecture coatings and structural protection systems to the building and construction industry; and,
iv) Rong Shun Landscape & Construction Pte Ltd – a high-value landscaping services provider whose portfolio includes green roofs, vertical gardens and wet land floating planting services.
An earnings accretive move.On a combined basis, the four local firms made SGD1.6m in net profits in the past financial year.
At a consideration price of SGD11m, the targets are being acquired at 6.8x P/E while ISOTeam trades at 9x FY14 P/E and 8.1x FY15F P/E.
This makes the acquisitions earnings accretive despite a potential c.10% dilution from the share base increase. We opine that the acquisitions, once completed, will impact ISOTeam’s earnings positively.
This corporate exercise is likely to be completed by year-end or early next year, after which we will make adjustments to our earnings forecasts.
Maintain BUY and DCF-derived SGD0.77 TP. We view this earnings accretive move positively. We opine that the expansion of its skill sets and trades is a pivotal move, given its market leadership position in R&R and addition & alteration (A&A).
We continue to like ISOTeam’s cash generation ability, low counterparty risks, generally inelastic demand in the R&R space for Housing Development Board projects and as a key beneficiary in Government-led initiatives in the public sector space.
Recent story: ISOTeam: Strong recurring income from Singapore's R&R and A&A needs