Excerpts from analyst's report

UOB KH analyst: Loke Chunying

VALUATION

· Maintain BUY but with the target price lowered to S$0.62, as we factor in the enlarged share base following the new share placement to Nippon Paint.

WHAT’S NEW
· ISOTeam (ISO) has proposed to place out 2.8m new ordinary shares to Nippon Paint (Singapore) Company Pte Ltd (Nippon Paint) at S$0.50/share.

· Upon completion of the placement and proposed acquisition of Industrial Contracts Marketing Pte. Ltd. by ISO (as announced on 27 Oct 14), Nippon Paint will hold, about 5.93% of the ISO’s enlarged share capital. ISO intends to use the net proceeds of S$1.4m to fund the proposed acquisition of the 4 companies announced earlier.


ISO_CEOGM4.14Anthony Koh (left), CEO of ISO Team, and the GM, Richard Chan, speaking with an analyst. NextInsight file photo

OUR VIEW
Nippon Paint has been one of ISO’s suppliers since 2004. Having enjoyed a cordial relationship, ISO is also Nippon Paint’s exclusive applicator of paint works concerning repairs and redecoration (R&R) projects for the HDB and Town Council. We believe the recent proposed placement, further cements the strategic relationship between ISO and one of its key business partner/supplier.

A better FY15. Despite enjoying a strong FY10-FY13 net profit CAGR of 29.9%, we believe there is still room for more growth ahead for ISO. To recall, as at 30 Jun 14, ISO’s orderbook remained strong at S$73.2m, of which, 67% are R&R projects (estimated at S$49m) which will be recognised within a year. This suggests that FY15 R&R revenue will at least be comparable to FY14’s S$48.3m.

R&R formed 70% of ISO’s total revenue in FY14. With the demand for R&R and A&A remaining strong, and ISO’s proposed acquisitions expected to start contributing to net profit in 2HFY15, we are confident FY15 will be an even better year for ISO.

Maintain BUY but with a slightly lower target price of S$0.62, as we adjust for the enlarged share base. Our target price has an implied FY16F PE of 8.1x, which is at premium to its construction peers’ PE of 4.3x. We think the premium is justified given that 50% of ISO’s earnings (R&R) are highly defensive and recurring in nature as compared with that of its construction peers whose businesses are more cyclical in nature. 

Recent story:  ISO TEAM: Expanding its suite of services, 77-c target, says OSK-DMG

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