ISOTeam's  FY14  PATMI  of  SGD6.1m  beat  our  earnings  estimates  by 43%,  representing  c.100%  y-o-y  growth  (excluding  one-off  disposal gains  in  FY13).  Growth  outlook  remains  strong  as  R&R  and  A&A segment growth  may be driven by government initiatives to rejuvenate mature  housing  estates  and  refurbish  schools.  We  raise  PATMI estimates  for  FY15F/16F  by  33%/43%.  Maintain  BUY  with  raised  DCFbased TP of SGD0.77. 

Solid  FY14  performance.  ISOTeam  delivered  a  record  SGD69.9m  in revenue and SGD6.1m in PATMI, which represent 44.8% and c.100% y o-y  growth  (excluding  one-off  disposal  gains  in  FY13).  PATMI outperformed  our  initial  earnings  estimates  of  SGD4.2m  by  43%.  The strong  performance  was  mainly  driven  by  the  strong  Repairs  and Redecoration  (R&R)  segment,  which  grew  83.2%  y-o-y.  Overall  gross margins improved  to 19.3% in FY14  from 17.0% in FY13, as ISOTeam reaped greater economies of scale from a larger R&R segment. DPS of SGD0.01 was declared, representing a 2.1% yield.

Robust  outlook  for  R&R  and  Addition  and  Alteration  (A&A)segments.  Management  said  the R&R industry for public projects  may grow 30% annually on the back of  rules stating that the external walls of buildings be repainted  at least once in five years.  Outlook for the  A&A segment  is  also  picking  up,  driven  by  government  initiatives  to rejuvenate  mature  housing  estates  and  refurbish  schools.  The company's orderbook as at June stood  at SGD73.2m. It said  it  may win SGD39.8m worth of jobs as it was the lowest tenderer for these projects.

Raising  earnings  estimates  on  strong  execution  and  business outlook. We raise our  PATMI estimates for FY15F/16F by 33%/43% to SGD6.7m  and  SGD8.5m  and  forecast  R&R/A&A  revenue  growth  at c.25%/10%, with gross margins of c.21%/13%.

Lifting  TP to DCF-derived SGD0.77 (vs  SGD0.515).  Assumptions are WACC:  7.4%;  terminal  growth  rate:  0.5%.  ISOTeam  has  a  cashgenerating  business  and  is  now  in  a  strong  net  cash  position  of SGD12.7m (about 23% of its market cap).  The stock is currently trading at 9.1x/8.2x/6.5x FY14/15F/16F P/Es

Source: OSK-DMG