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RHB downgrades ISOTeam’s rating to 'neutral' with lowered TP of 12 cents

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RHB Group Research downgrades ISOTeam’s rating from ‘buy’ to ‘neutral’ with a lowered target price to 12 cents from 21 cents

RHB Group Research analyst Jarick Seet downgrades ISOTeam’s rating from ‘buy’ to ‘neutral’ with a lower DCF-derived target price to 12 cents from 21 cents.

“ISOteam incurred a net loss of $14.5 million for FY2021 mainly due to the ongoing Covid-19 situation including supply chain disruptions and labour shortages which have severely impacted its margins,” says Seet. “FY2022 will likely be a better year and margins should continue to improve.”

With an order book of $165.2 million as at 30 June 2021 to be delivered over two years, the analyst expects revenue to continue to rebound stronger as the company executes more projects. In addition, management also expects the number of projects up for tender to increase as activities slowly resume and it aims to actively tender for such projects to beef up its order book.

“We decrease our FY2022 and FY2023 PATMI estimates by 70% and 65% respectively to account for the Covid-19 margin compression but still expect a turnaround in FY2022,” Seet mentions.

“However, conservatively we maintain a wait and see approach on the situation and downgrade the stock to ‘neutral’ for now,” he adds.

Shift into drone painting

According to the analyst, ISOteam has inked an MOU with Nippon Paint Singapore and Acclivis to develop and enable the use of autonomous painting drones for the painting of building façades or structures. “The collaboration is part of ISOTeam’s strategy to improve its productivity and manpower deployment through the use of technology,” says Seet.

Previously, ISOTeam had entered into a five-year collaboration with H3 Dynamics Ltd to work together exclusively for the Housing and Development Board (“HDB”), town councils, as well as commercial and condominium building façade inspection projects. Moreover, ISOTeam secured a building façade inspection and repairs contract for 154 HDB blocks and will work with H3 Dynamics to utilise AI and drone technology for such a project.

Overall, the analyst has decided to adopt a “wait and see approach” towards evaluating ISOTeam. “We prefer to be prudent and wait and see to monitor and assess if the situation improves for 1HFY2022 with the Omicron [variant] still a threat,” Seet says.

Shares in ISOTeam are trading flat at 11 cents on Jan 24.

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