ISOTeam - RHB Invest 2016-02-15: An Exciting 2H16 Ahead

ISOTEAM LTD 5WF.SI

ISOTeam - An Exciting 2H16 Ahead

ISOTeam reported a steady 1H16 results, with topline increasing by 14.7% YoY while NPAT grew 11.6% YoY, partially contributed by the strong 21.8% YoY growth in the addition and alteration (A&A) business segment.
With a strong orderbook of SGD89.7m and multiple tenders won after the elections, we believe that ISOTeam will enjoy a good 2H16.

In addition, we understand that they are close to finalizing their regional expansion plans which should provide new possibilities for ISOTeam.
Maintain BUY with an unchanged DCF-based TP of SGD0.82, implying 10x FY16F P/E.

Due to the elections held last year and the relining of several districts, town councils had to be disbanded and reformed. As a result, tenders to be awarded were put on hold, which partially resulted in revenue from the R&R segment to decrease by 18.1% YoY despite completing five projects.
However, we understand that the pace of tenders being awarded accelerated post elections and ISOTeam as bagged a few new contracts.
With a healthy orderbook for R&R, management expects 2H16 to pick up strongly.

ISOTeam is keen to tap into the infrastructure boom in the region. We understand that ISOTeam will be expanding into Myanmar with the help of its substantial shareholder and strategic partner, Nippon Paint. Currently, ISOTeam is the exclusive applicator for painting works in the Housing Development Board (HDB) and town council sector for both SKK and Nippon Paint Singapore.
We think that there will be a high possibility of the same arrangement overseas with Nippon Paint as well as SKK paint – which would be a key leap forward for their expansion out of Singapore.

ISOTeam has a strong track record in replenishing it orderbook, especially post elections.
Its current orderbook stands at SGD89.7m, this is despite already delivering SGD45m worth of projects in 1H16. These projects will progressively be realized over the next 2 years.
We believe that this provides good earnings visibility into 2016 and 2017, and is a reflection of the market’s belief in its proven track record.

With majority of their revenue from government related projects, we believe that the company’s earnings would be more resilient to a slowdown in the Singapore economy as governments are likely spend more in a downturn.
As shown from the strong orderbook and multiple tenders won after the elections (most recent was a SGD16.7m tender won on 29 Jan 2016), we believe that ISOTeam will continue to generate good 2H16 results.
In addition, we understand that they are close to finalizing their regional expansion which should provide new possibilities for ISOTeam.
Maintain BUY with an unchanged DCF-based TP of SGD0.82, implying 10x FY16F P/E.
A 1 for 1 bonus share issue has also been announced to improve liquidity.
Key risk to our view is the delay in projects and tenders.

Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2016-02-15

RHB Research SGX Stock Analyst Report BUY Maintain BUY 0.82 Same 0.82