ISOTeam Limited - UOB Kay Hian 2015-09-04: Key Beneficiary Of The General Elections.


Key Beneficiary Of The General Elections 


• Maintain BUY with a target price of S$0.705 based on 9.6x FY16F PE. 


• Results in line with estimates. 

  • ISO reported a 34% yoy growth in net on the back of higher revenue. Excluding amortisation of intangible assets and written-off goodwill from acquisitions of new subsidiaries (which we had not factored in), FY15 profit before tax would have accounted for 97% of our full-year forecast. 

• Higher dividend. 

  • With its improved profitability, ISO increased its final dividend payout by 15% to S$0.0115/share, which translates to a yield of 2.0%. 


• Robust cash flow underpins solid balance sheet. 

  • ISO generated S$14.6m of free cashflow in FY15 as its net cash position rose to S$29.4m (S$0.206/share). 

• Increased cost savings. 

  • Given its expanded business operations and plunging oil price, ISO is starting to enjoy cost savings through economies of scale and lower material costs (eg. paint). ISO has also expanded the list of subcontractors that it partners with, resulting in more competitive pricing and consequently lower subcontractor costs. 
  • With plans to construct its own dormitory in the near term, we estimate ISO could save about S$1.6m when the dormitory is ready. 

• Sustained order-win momentum. 

  • ISO secured 17% more contracts in FY15 than in FY14, as its orderbook remain robust at S$84.7m. ISO is also the lowest bidder for five projects (S$14.4m) and is awaiting the tender award confirmation. 

• Beneficiary of the General Elections. 

  • We believe there has been some delay in the project tenders earlier in the year as town councils were awaiting confirmation on electoral boundaries. As such, this may lead to a spike in the tenders after the election, as town councils resume their plans. 
  • For e.g. People’s Action Party MPs for Holland-Bukit Timah GRC and Bukit Panjang SMC has outlined its Town Improvement plan for the next 5 years which includes a community garden trail and nature park and more covered pedestrian walkways and fitness corners. All of which will bode well for the A&A market which ISO operates in. 

• Spreading its wings beyond Singapore. 

  • ISO is currently in talks with its strategic supplier and shareholder, Nippon Paint (Singapore), to expand its footprint in regional markets such as Myanmar. 
  • We have tweaked our revenue forecast slightly to adjust for the timing of the awarding of contracts as we keep our profit forecasts relatively unchanged. 

• Our view. 

  • ISO is trading at 7.7x FY16F PE, and 5.0x ex-cash FY16F PE. 80% of ISO’s FY15 profit is derived from its highly defensive repairs and redecoration (R&R) segment. 
  • ISO’s outlook remains positive with the expected increase in near-term demand post election, with longer term demand buoyed by the growing number of buildings being constructed in Singapore.

Loke Chunying | UOB KH 2015-09-04
BUY Maintain BUY 0.705 Same 0.705