ISOTeam' s 2HFY2025 numbers were below expectations and new order wins were slower too.

 

Yet, Natalie Ong and Lim Siew Khee of CGS International have not only maintained their " add" call on the stock, they have also raised their target price from 9.6 cents to 10.2 cents, with a view that the company' s recurring business model will put it in good stead to enjoy profit and margin recovery.

 

For the half year ended June, ISOTeam, led by CEO Anthony Koh, reported earnings of $5.1 million, down 21% y-o-y, which Ong and Lim attribute to delays in revenue recognition which caused an " abnormally" weak half year.

 

The company' s order book as at June was $181 million, somewhat lower than $193 million recorded as at the end of the preceding year ended June 2024.

 

Nonetheless, Ong and Lim believe that demand for the company' s services will be well supported by a pipeline of some 100,000 new flats that will be launched between 2022 and 2027.

 

In addition, there are various estate upgrading and enhancement contracts that ISOTeam will presumably bid for.

 

Ong and Lim note that ISOTeam is moving into a new market segment: upgrading and renovating factory spaces that are being converted into workers' dormitories.

 

On Aug 15, the company announced a collaboration with Design@Loft Architects to this end, where this partner will be responsible for the architectural design and regulatory submissions while ISOTeam will provide upgrading, renovation and construction works.

 

ISOTeam is now in talks with 4 to 5 such potential clients, and the analysts think there could be more of such contracts given the shortage of worker accommodations in Singapore, as well as a 2030 deadline for all dorms to meet more stringent requirements.

 

They continue to like this stock for its recurring business model and profit and margin recovery and are now applying a valuation multiple of 8x FY2027 earnings, which is a discount of 16% off local listed peers because of its smaller scale, thereby deriving a target price of 10.2 cents.

 

For them, key re-rating catalysts include stronger-than-forecast orderbook growth and potential commercialisation of its BuildTech solutions, which could add new asset leasing revenue and geographical diversification opportunities.

 

On the other hand, delays in contract completion and constraints from cost and availability of foreign labour and subcontractors would be downside risks.

 

Maybank Securities analyst Jarick Seet is expecting ISOTeam&rsquo s 1HFY2026 ending Dec 31, 2026, performance to &ldquo improve significantly&rdquo y-o-y as recognition of some projects come in.

 

This comes as ISOTeam&rsquo s FY2025 results fell short of Seet&rsquo s and the consensus&rsquo expectations due to delays in project starting dates and the delayed recognition of some projects. For the year, ISOTeam&rsquo s revenue fell by 8.4% y-o-y to $119.2 million while patmi declined by 21.2% y-o-y to $5.1 million.

 

That said, Seet is maintaining his &ldquo buy&rdquo call given several positive factors ahead.

 

For one, ISOTeam is likely to see more contract wins with management expecting the pace of project awards to pick up. &ldquo [This is] driven by public sector upgrading works to introduce more community spaces and senior friendly amenities for both public and private estates,&rdquo Seet writes in his Aug 28 report.

 

Based on the historical rate, Seet estimates that another $20 million worth of orders should come in October this year.

 

He adds that ISOTeam has an existing order book of $181.1 million, of which 80% is slated to be completed within 18 months.

ISOTeam, which is currently the only local contractor to work with drones, is set to test its new artificial intelligence (AI) drone-painting solution on several build-to-order (BTO) sites by the end of October. If successful, this will be rolled out to more estates.

 

The move, which could reduce costs by 30% to 40%, would &ldquo position it well in terms of technology, lower labour use and costs as the Singapore government has long-coveted the application of technology to reduce manpower&rdquo .

 

Despite the upsides, Seet has lowered his target price to 10 cents from 10.4 cents previously. His new target price is pegged to a blended FY2025/FY2026 P/E of 9 times.

 

For FY2026, FY2027 and FY2028, Seet has reduced his revenue targets by 16.2%, 14% and 0.8% to $137.4 million, $158.4 million and $182.7 million respectively.