ISOTeam Ltd - CGS-CIMB Research 2018-06-11: Shaping Singapore’s Landscape

ISOTeam Ltd - CGS-CIMB Research 2018-06-11: Shaping Singapore’s Landscape ISOTEAM LTD. SGX: 5WF

ISOTeam Ltd - Shaping Singapore’s Landscape

  • Operates in building maintenance and estate upgrading industry.
  • ISOTeam sees itself as a potential beneficiary of refurbishment initiatives, improved property sentiment and national push towards greener environment.
  • Has market leadership in both R&R and A&A public sector, but also diversifying into private sector, other regional markets and commercialising green solutions.
  • Current S$133m order book is highest to date; management expects stronger 4QFY18F from bigger projects and potential one-off gains.
  • Based on Bloomberg consensus, the stock currently trades at 10x 12M forward P/E and offers 2% dividend yield.


  • Established since 1998 and based in Singapore, ISOTeam operates four main segments:
    • Repairs and redecoration (R&R) – recurring business of non-structural construction, improvement and routine maintenance. The group has completed 322 public housing and 962 private residential R&R projects to date;
    • Addition and alteration (A&A) – involves structural and general building works. This includes the Neighbourhood Renewal Programme (NRP), Hawker Upgrading Programme (HUP) and Estate Upgrading Programme (EUP). The group has also completed 21 NRP projects, 37 markets and food centres for HUP and R&R projects to date;
    • Coating & Painting (C&P) – refers to coating and painting across industrial, commercial and residential segments; and
    • Others – commercial interior designs, home retrofitting business, landscaping works, leasing service, waterproofing, green solutions business, mechanical & electrical engineering works, and handyman services.

Singapore’s natural ally

  • Backed by a 20-year track record, ISOTeam is one of Singapore’s most experienced facilities management specialists. With the Housing Development Board (HDB) expecting over 139k homes to benefit from the home improvement programme (HIP) according to press reports, management sees opportunities for further contract wins given its leading market share in repairs & redecoration (R&R; c.20%) and addition & alteration (A&A; c.30%) of the public landscape, in terms of overall revenue.

Highest order book to-date

  • After including the S$52.6m order wins announced on 24 May 2018, ISOTeam’s order book increases 62% to S$133m, of which 47% stems from public projects (vs. over 80% historically) and reflects its diversification into the private sector. The order book is also at its highest over the past three years (average: S$91.5m).
  • While 9M18 PATMI (-23.5% y-o-y) suffered from project delays and price competition, management expects a stronger 4QFY18 from larger, higher-margin projects.

One-off gains to boost FY18F net profit, according to management

  • The group announced a 34.1% stake sale of its mechanical & electrical (M&E) arm to Japan’s Taisei Oncho (1904 JP, Not rated) in Feb 2018. Apart from recognising c.S$1m divestment gains, management believes ISOTeam will also be able to leverage their M&E expertise and network for the next phase of growth.
  • Management estimates a S$2m-3m gain and rental cost savings in 4QFY18F from the completed sale and relocation of corporate headquarters in Mar 2018.

Going green, going regional

  • ISOTeam’s pursuit of complementary capabilities has helped mitigate the slower R&R project roll-out in recent years, according to management. It has added solutions for landscaping, odour removal and waterproofing, to tap customers’ preference shifts and national push towards a greener and more ecofriendly environment.
  • The group also made headway in its overseas ventures, having completed and secured painting and cleaning contracts in Myanmar and Malaysia since 2016.

Offers c.2% yield and recurring business

  • Based on Bloomberg consensus, the stock currently trades at 10x 12M forward P/E. It also offers c.2% dividend yield. 
  • According to management, ISOTeam operates on a business model that is relatively resilient to economic cycles but dependent on foreign labour and subcontractors.

Industry outlook

  • With the broad service and product offerings that ISOTeam has, management believes it is well-poised to ride favourable regulatory stipulations, as well as increasing national push towards more eco-conscious living.
  • According to the Building Maintenance and Strata Management Act 2004, building owners are required to repaint the external walls at an interval of not more than 5 years. This market represents a stable and recurring demand for building maintenance and estate upgrading companies like ISOTeam.
  • The Building and Construction Authority (“BCA”) expects a higher number of public projects in 2018F, valued at S$16bn-19bn, vs. S$15.5bn in 2017. Construction demand in the private sector is also estimated to improve from S$9bn last year, to S$10bn-12bn in 2018. Such growth is likely to stem from public works and en bloc projects. In the medium term, BCA projects construction demand to reach between S$26bn and S$33bn per year for 2019F and 2020F, and between S$28bn and S$35bn per year for 2021F and 2022F.
  • The BCA also aims to turn 80% of Singapore’s buildings green by 2030F. Apart from selling and distributing green products such as composite timber and thermal plaster, ISOTeam will also be able to export its eco-conscious solutions for building and estate-upgrading projects.
  • Launched since Jul 2012, the Home Improvement Programme (HIP) seeks to rectify common maintenance issues related to ageing flats. More than 139k homes are currently in the HIP pipeline, according to press reports.
  • The Neighbourhood Renewal Programme (NRP) was introduced in Aug 2007, and focuses on block and precinct improvements, covering a larger area of 2 or more neighbouring precincts. Other national refurbishment and upgrading initiatives include the Hawker Upgrading Programme (HUP) and Estate Upgrading Programme (EUP).
  • Under the SolarNova programme, which recently completed its third tender, the HDB seeks to roll out 220MWp of solar panels across 5,500 HDB blocks by 2020F. ISOTeam secured its third and single largest renewable energy installation project in early-2017. Industry players expect more of such tenders, to which management believes its growing track record will be beneficial.

Target Price: N/A

NGOH Yi Sin CGS-CIMB Research | 2018-06-11
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