ISOTeam - RHB Invest 2017-11-13: A Good Start To FY18

ISOTEAM LTD. 5WF.SI

ISOTeam - A Good Start To FY18

ISOTeam had a strong start to FY18, with PATMI rising 54.6% YoY. This was due to a sturdy performance in both its core R&R and A&A segments, where PATMI rose 62.7% and 34.9% YoY respectively.
The group’s orderbook remained healthy, at SGD87.2m last month. It also expects to add more projects from customers in the public sector – especially government ministries.

Its higher administrative costs stemming from acquisitions led us to trim our FY18F net profit by 5%. As a result, our DCF-based TP dips to SGD0.46 (from SGD0.50, 33% upside). BUY.

We are positive on ISOTeam’s outlook ahead. Despite a weaker macro-economic environment, it continues to steadily win contracts from the public sector. As at 27 Oct, its orderbook was at SGD87.2m.

Both its core business segments – repairs and redecoration (R&R) and additions and alterations (A&A) – did well, with topline surging 62.7% and 34.9% YoY respectively.
Going forward, we expect such a performance to continue for the rest of FY18 (Jun). It has a few large-sized projects in these segments, which may likely be completed over the rest of FY18. It is also in the process of tendering for more projects, of which the results should be revealed in the next 1-2 months.
Despite the weaker coating and painting (C&P) revenue, management expect more jobs to be up for tender soon – which may lead to stronger numbers ahead for this segment.

In Apr 2017, ISOTeam completed the purchase of its new premises in Changi, which would house its expanded operations including its corporate headquarters and the offices of its subsidiaries.
The group expects to centralise its operations at the new headquarters by the end of this year. It would also likely be selling off its previous office, which would enable it to enjoy a one-off gain of about SGD3m, which would be booked in FY18.

During our May 2016 visit to Myanmar, we noted that ISOTeam had tendered for a few local projects. It has since won a few projects on this front and we expect more revenue contributions in this area for 2018.

We expect the company to have a better FY18 ahead, as we expect more new contracts in the near term, with a recovering property sector outlook and contributions from its solar and Myanmar projects.
Management ventured into a few new projects that would enable it to grow further. These include the recently-announced SG Bike venture and cockroach spray, which has been fully launched in Singapore.
A better outlook for the Singapore property market would help boost the private jobs market, which would in turn benefit the company going forward. As a result, we maintain our BUY call.
Our DCF-based TP dips to SGD0.46 after accounting for higher manpower costs from the acquisitions it made in 2017, which resulted in us lowering our FY18F PATMI by 5%.

Jarick Seet RHB Invest | http://www.rhbinvest.com.sg/ 2017-11-13

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 0.46 Down 0.500