• 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.

1QFY20 Results Improved, But Are Softer Than Estimated

• 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.
• 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

• 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.

Delays in Acquiring Pure Group and Mobike

• 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 Make No Change to Our Call and DCF-based Target Price

• We continue to be positive on this counter, and believe that ISOTeam will be a beneficiary of the upcoming general election.

Key Downside Risks

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

Source: RHB Invest Research - 18 Nov 2019