ISOTeam - RHB Invest 2020-11-04: Expect a Rebound In FY21; Maintain BUY


ISOTeam - Expect a Rebound In FY21; Maintain BUY

  • ISOTeam (SGX:5WF) endured a tough FY20, with COVID-19 lockdowns stopping all construction projects and causing a delay in contract implementation. As of Sep 2020, it had an orderbook of S$165.7m, with jobs to be delivered over the next two years. With construction activities returning to normal after the lockdown, we expect profitability to rebound.
  • Maintain BUY on ISOTeam, new S$0.21 target price from S$0.24, 40% upside with c.3% FY21F (Jun) yield.

Activities have resumed fully.

  • The Singapore Government imposed the “circuit breaker” on 7 Apr, and subsequently issued stop-work orders on all projects when the virus started to spread rapidly among migrant workers, who form the backbone of the industry’s workforce. For almost five months, the workers’ movements were significantly restricted, and they could only carry on works for the most essential maintenance jobs.
  • With Singapore currently in Phase 2 of re-opening, ISOTeam has received approval by the relevant authorities to resume activities at all its construction sites and factories. However, the pace of resumption is slow, due to ongoing stringent measures in accordance with safe distancing and other health requirements – such as routine swab tests to be conducted at project sites, and prior clearance at dormitories before the workers can report to worksites.

Strong orderbook of S$165.7m.

  • As at 30 Sep, ISOTeam's orders in hand totalled S$165.7m, of which approximately 65% are public sector projects that are to be delivered (by and large) over the next two years. Of these, S$53.4m worth of contracts were secured following the end to the Singapore Government’s “circuit breaker” measures to curb the spread of the COVID-19 on 1 Jun, and the Phase 1 reopening of economic activities on 2 Jun.

A rebound in FY21F.

  • ISOTeam's management is optimistic that the Government will do its best to spur business activity by stepping up public sector projects. It is also anticipating pent-up demand from the private sector, which had put the company’s projects on hold. It has been very encouraged by the projects secured thus far, and will continue to pursue all leads to secure more. As a result, we expect ISOTeam's profitability to recover strongly in FY21, followed by an improvement in margins.
  • We maintain BUY on ISOTeam, with a lower target price of S$0.21 pegged to 11x FY21F P/E.
  • See ISOTeam Share Price; ISOTeam Target Price; ISOTeam Analyst Reports; ISOTeam Dividend History; ISOTeam Announcements; ISOTeam Latest News.
  • Key Risks. Economic slowdown, further COVID-19 lockdowns.

Jarick Seet RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-04
SGX Stock Analyst Report BUY MAINTAIN BUY 0.210 DOWN 0.240