Figure 1: Four *acquisitions completed in Jan 2015
* In the latest announcement dated 27 Feb 2015, Accom, Accom International and Rong Shun have been renamed as ISOTeam C&P Pte. Ltd, ISOTeam Access Pte. Ltd and ISO-Landscape Pte. Ltd.
Online handyman service portal rollout in 3Q CY2015
ISOTeam is rolling out its online handyman service portal in 3Q CY2015 to provide a one stop solution portal for plumbing, air conditioning, general repairs, tile works etc. This is a step forward to its vision of being a complete building and maintenance team.
Besides the usual risks which you can find in my previous writeup and ISOTeam’s prospectus, here are some which I deem to be noteworthy.
Risks
Illiquidity is still an issue
Based on its latest annual report 2014 which did not take into account of the recent placement and share issuance, the top 20 shareholders have about 90.4% of ISOTeam’s outstanding shares. Ave 30D and 100D volume amounted to around 285,000 and 212,000 shares respectively. This is not a liquid company where investors can enter or exit quickly.
Rising costs
Rising costs, attributed mainly to labour costs, are likely to rise in the medium to long term as our labour market is likely to be tight. However, in the recently announced budget, the foreign workers' levies will be held off to next year. This eases rising costs in the short term.
Notwithstanding the rising labour costs, ISOTeam should be able to maintain their gross margins at around 21% due in part to their recent acquisitions and economies of scale. Furthermore, their R&R projects are typically short term in nature around 9-14 months where they should not be too adversely impacted by rising labour costs.
Seemingly high valuations vs. their construction counterparts
ISOTeam trades at an annualised FY15F PE of around 9.6x. This seems pretty high vis-à-vis some of the construction companies. However, ISOTeam's core business is in building refurbishment and upgrading whereas some of their construction peers focus more on new build construction. Thus, this is not an "apple to apple" comparison. Furthermore, the business demand for building refurbishment and upgrading is also different from new build construction.
According to UOB Kayhian’s estimates, after accounting for the recent acquisitions and placement, ISOTeam is likely to have a strong net cash position of around S$13-15m. Stripping out the net cash position of S$13m, ISOTeam trades at an annualised FY15F PE of around 8.1x.
It is noteworthy that ISOTeam’s financial year end is in June, thus FY15F ends in June 2015. In addition, if ISOTeam continues to register earnings growth in FY16, coupled with a full year contribution of its aforementioned acquisitions (i.e. Accom etc), its PE should trend lower over time.
Technical outlook
ISOTeam with the last closing price of S$0.590, is near to its record intraday high of S$0.605 on 18 Feb. ISOTeam exhibits a clear uptrend as depicted by its rising exponential moving averages. It has spent the month of February consolidating its gains between S$0.565 – 0.605. Any breakout to the upside / downside with volume expansion has an eventual measured technical target of S$0.645 / 0.525 respectively. As the prevailing trend is up, the probability of an eventual upside breakout outweighs that of a downside break.
Supports: $0.575 / 0.565 / 0.55 – 0.555
Resistances: $0.605 – 0.610 / 0.645 – 0.650
Conclusion
Although ISOTeam has appreciated 55% since my last writeup, its defensive and revenue-recurring business (also mentioned in my previous writeup), potential record FY15F results, more contract wins and analyst coverage may be some of the possible catalysts for its share price.
Nevertheless, its lack of liquidity, seemingly high valuations relative to construction companies and sharp share price performance over the course of 13 months may be some noteworthy factors for readers to consider.
Recent story: ISOTEAM: Vote of confidence from strategic business partner
