ISOTeam - Steady Growth – Painting Block By Block
- We expect contributions from ISOTeam’s solar renewable projects and Myanmar business venture – coupled with earnings from its recent acquisition – to underpin continued strong results going forward.
- It has a solid SGD107.1m orderbook currently and we expect more contract wins in the near term as the results for some tenders are due.
- With a positive outlook ahead, we continue to maintain our BUY call and DCF-backed SGD0.59 TP (41% upside) on this stock.
Strong SGD107.1m orderbook.
- We are positive on ISOTeam’s outlook ahead. Despite a weaker macroeconomic environment, it continues to steadily win contracts from the public sector.
- As of 1HFY17 (Jun), its orderbook stood at a SGD107.1m high.
Accretive acquisition with profit guarantee.
- ISOTeam’s recent SGD6.45m acquisition of Rong Shun Engineering & Construction Pte Ltd (Rong Shun) also comes with a PBT guarantee of not < 12% of the existing orderbook. This cannot go below SGD13.1m and works out to a SGD1.6m PBT guarantee. This represents 4x P/E, which would be accretive to the group.
- Recall that this acquisition was funded via internal cash flows, with the purchase consideration satisfied by ~ 57% cash and remainder via the issuance of treasury shares in three separate tranches over two years.
Looking forward to contributions from Myanmar.
- During our May 2016 visit to Myanmar, we noted that ISOTeam had tendered for a few local projects. We now expect the tender results to be known soon, and believe the group has a high chance of winning some of these projects.
Maintain BUY, as more contracts are incoming.
- We expect ISOTeam to continue winning more contracts in the near term.
- With a strong orderbook as well as acquisition earnings set to kick in during 2HFY17, we remain positive on its outlook. Thus, we maintain our BUY call and DCF-backed SGD0.59 TP, which implies 13.5x FY17F P/E.