• Maintain BUY with higher SGD0.07 TP from SGD0.048, 27% upside, c4% FY25F (Jun) yield. We remain positive on ISOTeam’s earnings outlook, raising our FY25F-26F’s PATMI by 63% and 62% – this was after FY24’s earnings outpaced our expectations on better margins. The stock should benefit and ride on more government projects ahead of parliamentary elections due by the end of 2025. Our new TP is based on 6x FY25F P/E from 9x previously and pegged at a discount to peers.

• Maintain our positive outlook. The group’s orderbook stood at SGD202.4m as at 6 Sep 2024 (FY24: SGD193.1m). With elections slated for no later than end 2025, we expect the Government to carry out more development and upgrading works ahead of the polls. These bode well for ISOTeam, as it is a leading player in carrying out upgrading and development works for public projects – these include facade enhancement and home improvement programmes, repainting and upgrading works at Housing & Development Board flats, town councils, neighbourhoods, hawker centres, parks, and government buildings. Its orderbook could be boosted by more of such projects.

• Raise FY25F and FY26F earnings by 63% and 62%. We are now more positive on ISOTeam’s earnings outlook, as its recovery is stronger than expected. FY24’s earnings of SGD6m has markedly outperformed our estimate of SGD3m. Due to its stronger earnings base in FY24, we raise our FY25F and FY26F’s earnings by 63% and 62% to SGD8m and SGD9m. We raise our FY25F and FY26F revenue assumption by 10% and 9% to account for a strong orderbook and project traction. We also bump our operating margin projections to 9% on better operating efficiency.

• FY24 earnings above expectations. FY24’s earnings of SGD6m outperformed our SGD3m estimate. Revenue was in line at SGD130m (+18% YoY), led by broad-based growth from the repairs & redecoration (R&R), (+42% YoY, SGD50m), addition & alteration (A&A) (35% YoY; SGD45m), and coating & painting (C&P) (32% YoY; SGD17m) segments. The others segment saw a 39% YoY decline to SGD17m. Gross margins improved by 5.5ppts to 15.5%, above our 14% expectations. This has also resulted in better-than- expected EBIT of SGD12m and EBIT margin of 8.9%. FY24 saw a marked reversal of project margins from FY23. With projects tendered at better margins in FY24, it reversed FY23’s low-margin projects, which previously experienced cost overruns.

• Downside risk includes a continuing rise in raw material and labour costs. As ISOTeam’s ESG score is in line with our 3.1 country median, we impute a 0% premium/discount to its intrinsic value to derive our new TP.

Source: RHB Research - 25 Oct 2024