The Covid-19 lockdown certainly didn't do any favour for ISOTeam's business, nor did a post-pandemic jump in labour costs. What's great since then is that the construction industry is back on its feet -- with better profit margins for new contracts. For that reason, ISOTeam looks poised to emerge from the dark days. Read Lim & Tan Securities' analyst note below following a successful rights issue by ISOTeam.



ISOTeam ($0.041, unchanged) is a construction player in Singapore that operates mainly under 4 segments: Repairs & Redecoration (R&R), Addition & Alteration (A&A), Coating & Painting (C&P) and Pest Control.

ISOTeam has an early mover advantage in environmentally sustainable solutions as it implements eco-conscious solutions for building and estate upgrading projects.

AnthonyKoh8.15
• Anthony Koh, CEO of ISOTeam: Coughed up $230,460 to subscribe for the rights issue. 
• He is also a one-third shareholder of ADD Investment Holding which paid 
$3,598,632 for its rights entitlement. 
As such, ISOTeam stays ahead of competitors with expertise gained from implementing and integrating environmentally sustainable solutions, especially with their increased focus on eco-conscious elements in R&R and A&A projects in line with the Singapore government’s green initiatives.

ISOTeam has also raised funds via rights issue ($0.03/rights) which will see ISOTeam raising up to S$10.3mln in proceeds depending on the take up rate.

The proceeds will be used for general working capital (70%) and repayment of debt (30%).



With the rights proceeds, this provides ISOTeam with additional cash reserves to support working capital needs and enable us to tender more aggressively for new projects.

Reflecting the market’s confidence in the company’s prospects, while the rights issue was non-underwritten, it was nevertheless oversubscribed by close to 60%. This should ensure that their funding needs have been met for the next few years, reducing the risks for further cash calls.

"As ISOTeam finishes up their lower-margined legacy contracts which were secured pre-Covid-19, they can now start on better & more normalized value margined contracts (reverting back to their pre-covid-19 period) which should be reflected in their FY24F & FY25F results."

The shares should have been credited and can now be traded in the market.

The Building Construction Authority (BCA) expects total construction demand in Singapore to remain strong in 2023, ranging between S$27bln to S$32bln.

The public sector is expected to contribute 60% of this demand particularly in industrial and institutional construction and further supported by HDB’s ramping up of Build-To-Order flats supply, the construction of water treatment plants and community clubs.

ISOTeam is optimistic that demand for its services will be steady due to the recurring nature of its projects – many of which are government-driven, including national upgrading programmes such as the Home Improvement Programme and the Neighbourhood Renewal Programme.
 
ISOTeam has long-standing and established relationships with customers, suppliers and sub-contractors. This has given it a competitive edge in securing new projects from established working relationships with various major customers in both the public and private sectors such as town councils, statutory boards, property owners, developers and main contractors.

As such, ISOTeam is now the exclusive applicator of public housing paint works for SKK. It is also the exclusive applicator of HDB and town council paint works for Nippon Paint Singapore.

"To help with the increasing construction demand, ISOTeam has added nearly 300 plus workers since 2022 to ready themselves for the recovery and has launched a rights issue to raise S$10.3mln to prepare to tender more aggressively for the increasing number of projects."

ISOTeam is also capable of handling a wide spectrum of projects. The landscaping and A&A capabilities supports the Plan’s “City in Nature” goals to develop more than 130 hectares of new parks and enhance more than 170 hectares of existing parks by 2026 and to add 200 hectares of new nature parks and 200 hectares of skyrise greenery by 2030.

Meanwhile, ISOTeam’s A&A capabilities support the Plan’s “Green Commute” goal to increase island-wide cycling paths to 1,300 km.

Having been a renewable energy installation partner to solar solutions provider Sunseap Leasing Pte. Ltd. since 2016, ISOTeam also has the right experience to support the Plan’s green energy goals, including the reduction of energy consumption in HDB towns by 15% by 2030 and to increase the deployment and storage of solar energy.

With R&R as one of its core capabilities and Nippon Paint Singapore as its key partner and paint supplier, ISOTeam has applied some cool coatings in pilot projects in Tampines estate.

The Group believes this exercise gives them a firm foothold to be part of the Plan’s goal to reduce Singapore’s ambient temperature by 2°C by 2030.

1H23 shows recovery signs

The latest 1H23 results are showing signs of recovery, in line with the recovery in the construction industry.

As ISOTeam finishes up their lower-margined legacy contracts which were secured pre-Covid-19, they can now start on better & more normalized value margined contracts (reverting back to their pre-covid-19 period) which should be reflected in their FY24F & FY25F results.

With 30% growth in their orderbook to S$194mln as at 3rd Aug 2023, this would ensure revenue visibility until 2025.

To help with the increasing construction demand, ISOTeam has added nearly 300 plus workers since 2022 to ready themselves for the recovery and has launched a rights issue to raise S$10.3mln to prepare to tender more aggressively for the increasing number of projects.

ISOTeam’s market cap stands at $28.5mln and currently trades at 5.7x forward PE and 0.8x PB according to Bloomberg estimates.

FY24 dividend yield is expected to come in 5.3% and consensus target price stands at S$0.087, representing 112% upside from current share price.

 

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