• Stay BUY with a DCF-backed SGD0.31 Target Price, 35% upside plus 2.2% FY20F (Jun) yield.
• ISOTEAM (SGX:5WF)’s FY19 revenue jumped 63% y-o-y to SGD136.6m from SGD83.8m on strong growth across all business segments. PATMI grew to SGD6.3m from SGD0.5m.
• The new addition of Pure, upon completion of the acquisition, should allow the group to move up the industry value chain – from an existing upgrading contractor to a turnkey one. In turn, this will open up a lot more opportunities in future.

SGD9bn Investment Plan by Singapore’s Integrated Resorts

• Both Marina Bay Sands (MBS) and Resorts World Sentosa (RWS) will invest SGD9bn to develop and rejuvenate their non-gaming components. We see ISOTeam as a beneficiary of their expansion programmes, given the acquisition of the project manager of MBS – Pure) – as well as its track record in completing a series of food outlets and a nightclub worth SGD46.5m for the resort. ISOTeam also has a past working relationship with RWS.

Steady Stream of Recurring Income

• ~70% of ISOTeam’s revenue comes from the repair & redecoration (R&R) and addition & alteration business segments, which are deemed as recurring in nature. Given the various government initiatives, such as the Home Improvement Programmes I & II – which will likely benefit 230,000 flats – and an R&R project cycle that requires the repainting of external walls every five years, we think these two business segments will likely hold steady in the long run.

Taking Over Mobike’s Assets

• ISOTeam is looking to add 25,000 bicycles to its existing fleet of 3,000 bikes under SG Bike. We understand that it is currently breaking even at the operational level. SG bike is looking to replicate its current business model and expand its fleet into different parts of Singapore. The acquisition consideration of SGD2.54m consists of a security deposit of SGD0.76m, SGD1.2m in license fees, and SGD0.58m for 25,000 bikes.

We Keep Our Call and DCF-backed Target Price

• Extending its value chain by acquiring MBS’ existing project manager blends well with the Government’s plans. ISOTeam's orderbook remains robust at SGD113.5m, and we are expecting more orders to come in the next couple of months.
• Key downside risks: Reduced order intake, lower margins, and a negative outlook of the building maintenance & estate upgrading industry in Singapore.

Source: RHB Invest Research - 29 Aug 2019