ISOTeam - UOB Kay Hian 2016-08-25: FY16 More SolarNova Contract Wins To Come

ISOTeam (ISO SP) - UOB Kay Hian 2016-08-25:  FY16: More SolarNova Contract Wins To Come ISOTEAM LTD. 5WF.SI

ISOTeam (ISO SP) - FY16: More SolarNova Contract Wins To Come

  • ISOTeam’s FY16 results came in within expectations. 
  • While R&R revenue slowed, A&A revenue jumped. 
  • New segments, C&P and others, also saw revenue catapulting by 231% and 185% yoy respectively. 
  • The strong order backlog should provide clear order visibility and going forward, the renewables segment should provide further growth with more SolarNova-related contract wins. 
  • Other catalysts include more earnings-accretive M&As. 
  • Maintain BUY and target price of S$0.53.


RESULTS


ISOTeam’s FY16 results in line with expectations. 

  • ISOTeam delivered a strong set of FY17 results with no surprises. Net profit grew 18.2% yoy to S$9.6m on the back of S$94.1m revenue (+15.3% yoy).

Mixed results from traditional A&A and R&R businesses. 

  • Impacted by the Singapore general election last year (which saw tenders for certain HDB work frozen for three to four months), R&R business saw a 26.1% yoy decline in revenue to S$40.2m. This was partially offset by a 40.1% yoy jump in A&A revenue to S$24.3m.

New segment performed. 

  • Its new business segment C&P, which caters primarily to private projects, saw revenue catapulting 231% yoy to S$11.8m. 
  • Revenue for others segment, derived largely from interior design works, waterproofing works and landscaping works, also sky-rocketed by 185% yoy to S$17.7m.

Dividends increased 30% yoy. 

  • Compared with a 0.575 S cent dividend in FY15 (after accounting for a 1-for-1 share spilt), ISOTeam has increased dividends by 30% to 0.75 cent, translating into a yield of 1.9%. 
  • We opine it could pay more in dividends, given its S$28m balance sheet, but it could be conserving cash for M&As. 


STOCK IMPACT


Clear order visibility with strong order backlog. 

  • With the general election over, order win momentum for the company has picked up with S$50.1m of new orders in 2HFY16.
  • The group's orderbook as at 3 Aug 16 stood at S$94.1m, equivalent to about a year’s visibility.

Renewable energy segment to provide the spark going forward. 

  • We re-iterate our confidence that ISOTeam would soon be able to secure more projects from SolarNova. It should be able to win at least around 200 blocks of HDB work for SolarNova’s phase one tender (831 blocks in total) and more should follow for subsequent phases as Singapore continues its drive for green and renewable energy.


EARNINGS REVISION/RISK


Forecasts unchanged as fundamentals are intact. 

  • We keep our earnings forecasts unchanged as the company delivered in-line results. We opine there is minimum downside risk to our earnings forecasts for the next two years, given the strong order visibility.


VALUATION/RECOMMENDATION


Maintain BUY and DCF-derived target price of S$0.53. 

  • With a conservative WACC of 10.0% and a terminal growth rate of 0%, our target price remains unchanged at S$0.53, representing a 23.3% price upside. 
  • Given our forecasts of net profit growth of >17% and ROE of >18% for FY17-18, our target price implies a reasonable FY17F PE of 13.3x and P/B of 2.5x.


SHARE PRICE CATALYST

  • Better-than-expected SolarNova-related contract wins.
  • More earnings-accretive M&As.




Edison Chen UOB Kay Hian | http://research.uobkayhian.com/ 2016-08-25
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.530 Same 0.530


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