ISOTeam  is  acquiring  four  local  companies  in  a  cash-equity  deal  for c.SGD11m  in total.  Maintain BUY  and  SGD0.77  TP, a 54% upside.  The company  will  fork  out  SGD4.945m  (cash)  and  SGD5.845m  (shares), assuming  11.69m shares  are  issued at SGD0.50 each. The acquisition should enable it  to expand its current suite of services, complementing its core R&R and A&A expertise, and interior renovation business.  

Acquiring  new  trades  and  skill  sets.  ISOTeam  is  acquiring  four companies  in  cash-equity  deals totalling  SGD11m.  They  are:  i)  Accom International  Pte Ltd  -  a rental  provider  of  more than  166 construction and  renovation  equipment  that  include  boom  and  scissor  construction lifts; ii)  Accom  Pte Ltd  -  a repairs & redecoration (R&R)  specialist in the private-commercial sector; iii)  Industrial  Contracts Marketing (2001) Pte Ltd  -  an  application  specialist  in  special  architecture  coatings  and structural  protection  systems  to  the  building  and  construction  industry; and,  iv)  Rong  Shun  Landscape  &  Construction  Pte  Ltd  -  a  high-value landscaping  services  provider  whose  portfolio  includes  green  roofs, vertical gardens and wet land floating planting services.  

An earnings accretive move. On a combined basis, the four local firmsmade  SGD1.6m  in  net  profits  in  the  past  financial  year.  At  a consideration price of SGD11m, the targets  are being  acquired at 6.8x P/E  while  ISOTeam  trades  at  9x  FY14  P/E  and  8.1x  FY15F  P/E.  This makes  the  acquisitions  earnings  accretive  despite  a  potential  c.10% dilution  from  the  share  base  increase.  We  opine  that  the  acquisitions, once  completed,  will  impact  ISOTeam's  earnings  positively.  This corporate  exercise  is  likely  to  be  completed  by  year-end  or  early  next year, after which we will make adjustments to our earnings forecasts.

Maintain  BUY  and  DCF-derived  SGD0.77  TP.  We  view  this  earnings accretive move positively. We opine that  the expansion of its skill  sets and trades is a pivotal move, given its market leadership position in R&R and  addition  &  alteration  (A&A).  We  continue  to  like  ISOTeam's  cash generation ability, low counterparty risks, generally inelastic demand in the R&R space for  Housing Development Board  projects and  as  a key beneficiary in Government-led initiatives in the public sector space.

Source: OSK-DMG