Excerpts from analyst's report

DBS Vickers analyst: Alfie Yeo

hdbflatISOTeam has more than 15 years of Repairs & Redecoration and Addition & Alteration track record in upgrading, retrofitting and maintenance of estates in Singapore. Government estate upgrading and Myanmar to drive growth. Growth is dependent on the government’s initiatives to reshape the landscape of public housing, amenities and towns in Singapore including Neighbourhood Renewal Programme (NRP).

As one of the largest integrated specialist A&A and R&R service providers, we believe ISOTeam enjoys economies of scale in its resources and is able to bid for projects more competitively than its smaller rivals.

Newly incorporated JV with Nippon Paint in Myanmar will be able to tap growth potential in infrastructure development and construction activities there.


 

ISOTeam
Share price: 
31 c
Fair value: 
35 c

VALUATIONS
Growth loaded in Myanmar and renewable energy segment.
The stock currently trades at its average of the last six years’ forward PE at 9.3x and slightly below its construction peers’ average of 9.5x.

However, given its growth potential especially in the renewable energy segment and Myanmar, we believe a 10x FY17F PE valuation (equivalent to +1SD) is fair. Our TP works out to S$0.35 per share, which translates to a 12% upside.

♦ Organically & through acquisitions
alfieyeo11.14"Management’s strategy is to grow organically and through acquisitions. In Singapore, it will look to secure more A&A and R&R projects in the public sector. The Myanmar JV will seek to leverage on growth overseas and in a developing market.

"ISOTeam’s M&A strategy is to acquire related businesses to integrate vertically and horizontally. It has a history of acquiring businesses with resources including equipment and related skill sets. Past acquisitions include construction and renovation equipment, R&R, paint application specialist, and landscaping companies."

-- Alfie Yeo (photo)

Strong balance sheet to make acquisitions.ISOTeam has a track record of making acquisitions. Its net cash balance sheet allows headroom to gear up for future acquisitions.

The company's balance sheet has a net cash of close to S$30m at 1H16, equivalent to about S$0.10 per share.


Decent free float, yet key stakeholders control a significant stake in the company.
  ISOTeam’s free float works out to about 40%. The founding shareholders remain the single largest shareholder in ISOTeam with a 42% stake.

Other shareholders have significantly smaller stakes with the second largest shareholder Nippon Paint Singapore at 5.6%.


Full report here.


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