ISOTeam - RHB Invest 2019-11-18: Anticipating Completion of M&As; Stay BUY

ISOTEAM LTD. (SGX:5WF)

ISOTeam - Anticipating Completion of M&As; Stay BUY

BUY, DCF-based SGD0.31 Target Price, 29% upside with 2% FY20F (Jun) yield.
ISOTEAM (SGX:5WF)’s 1QFY20 revenue grew 3.7% y-o-y to SGD28.3m, mainly on strong growth in the R&R and C&P segments. Its orderbook grew by 22% y-o-y to SGD148.2m. This includes its first A&A project for an MRT station – Lentor – which could open up new opportunities.
ISOTeam should also be a key beneficiary of the upcoming general election. Despite the delay in acquisitions, we maintain our BUY call.

ISOTeam's 1QFY20 revenue grew 3.7% y-o-y to SGD28.3m on higher contributions from the repair and renovation (R&R, +133.4% y-o-y) and coating and painting (C&P, +54.3% y-o-y) segments. This was offset by lower contributions from the addition and alteration (A&A, - 33.5% y-o-y) and other (-16.1% y-o-y) divisions. See ISOTeam Announcements.
PATMI surged 44.3% y-o-y to SGD1.1m in 1QFY20 due to lower marketing & distribution as well as general and administrative expenses. Excluding Pure Group, 1QFY20 revenue and PATMI comprise 21% and 15% of our full-year forecasts, on higher margin expectations.
We think that the slow start in the A&A segment was due to a timing issue, as its pipeline of orders remains strong.

1QFY20 orderbook grew 22% y-o-y to SGD148.2m from SGD121m in 1Q19. New contracts secured this quarter totalled SGD25.9m, including the first A&A project for the MRT station. This opens up doors for it to secure future MRT station contracts, if delivery meets expectations.

Since ISOTeam announced the proposed acquisition of Pure Group on 24 Jul, the group has made two announcements on the extension of its date of completion – which has been extended to 30 Nov. The acquisition includes an earn-out payment of SGD3m and SGD5m in after-tax profit for FY20F and FY21F respectively.
Meanwhile, the Mobike acquisition’s completion date has been extended to 31 Dec. We remain hopeful that these acquisitions will be finalised.

We continue to be positive on this counter, and believe that ISOTeam will be a beneficiary of the upcoming general election. See ISOTeam Share Price; ISOTeam Target Price.

M&As falling through, reduced order intake, lower margins, and a negative outlook for the building maintenance & estate upgrading industry in Singapore.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2019-11-18

SGX Stock Analyst Report BUY MAINTAIN BUY 0.310 SAME 0.310