ISOTeam - UOB Kay Hian 2016-07-27: Contract Wins Galore; BUY For 39.4% Upside

ISOTeam - UOB Kay Hian 2016-07-27: Contract Wins Galore; BUY For 39.4% Upside ISOTEAM LTD 5WF.SI 

ISOTeam (ISO SP) - Mid Caps: Contract Wins Galore; BUY For 39.4% Upside

  • The largest contractor of maintenance and addition works for public housing, ISOTeam has been delivering an impressive profit CAGR of 40% since its IPO. 
  • We believe: 
    1. its traditional portfolio’s order win momentum would continue, 
    2. its first overseas contract win, and 
    3. renewables energy contract wins will keep flowing in. 
  • We expect exciting profit growth of > 17% and ROE of > 18% for FY16-18, as well as net cash of S$36m (33.3% of market cap), to fuel a potential dividend increase or more share buyback. 
  • Re-initiate coverage with BUY and target price of S$0.53.


  • We re-initiated coverage on ISOTeam.


Impressive revenue and profit growth as the largest contractor of maintenance work for HDB. 

  • ISOTeam has entrenched itself as the largest contractor (~20-30% market share) engaged in maintenance and addition works for public housing (HDB/town councils) with 18 years of experience. It has even won projects despite not being the lowest bidder. 
  • Since its 2013 listing, it has reported impressive revenue and profit CAGR growth of 32.1% and 40.1% respectively. We believe this growth will continue given its strong order win momentum.

Strong order win momentum of traditional portfolio to continue. 

  • Since the start of the year, ISOTeam has announced 19 contract wins with a total value of around S$44.8m. 
  • We estimate its current orderbook to be around S$110m with more contract wins to be announced in 2H16, providing earnings visibility for FY17 and beyond.

Status as exclusive paint applicator of Nippon and SKK brings key benefits. 

  • One of ISOTeam’s biggest strengths is being the exclusive paint applicator for Nippon Paint Singapore and SKK. This brings about several key advantages, including: 
    1. improved branding and recognition, 
    2. cheaper paint costs, which allows ISOTeam to bid more competitively for projects, and 
    3. referral businesses from the paint companies.

First overseas contract win imminent. 

  • With Nippon Paint Singapore’s help, we expect ISOTeam to announce its first Myanmar contract soon and for its overseas revenue to grow rapidly in the range of 40-50% as they develop a foothold overseas. If successful, they could explore similar opportunities in other countries.

Renewable/green energy contract wins to keep flowing in. 

  • We believe the recent S$1.8m contract for 33 blocks is more likely an initial “test” from Sunseap to select qualified contractors to fulfil the full quota for the SolarNova tender involving 831 blocks. 
  • We believe ISOTeam would perform better than its competitors with its expertise and should win at least 200 blocks worth of work soon.

Net cash of S$36m will likely fuel dividend increase and more share buyback. 

  • With a net cash position of S$36m (33.3% of market cap) expected for FY17, we opine that ISOTeam could increase its dividend payout ratio for dividends to S$0.012 in FY17, implying a 3.2% yield. The possibility of more share buybacks is likely as well.


  • Re-initiate coverage with BUY and DCF-derived target price of S$0.53 with a conservative WACC of 10.0% and terminal growth rate of 0%, representing 39.4% upside potential. 
  • Given our forecasts of net profit growth of > 17% and ROE of > 18% for FY16-18, our target price implies a reasonable FY17F PE of 13.3x and P/B of 2.5x.

Edison Chen UOB Kay Hian | 2016-07-27
UOB Kay Hian SGX Stock Analyst Report BUY Initiate BUY 0.53 Same 0.53