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RHB pegs ISOTeam’s TP at 5 cents after rights issuance

ISOTeam successfully raises $10.3 million in rights issue exercise.

RHB Bank Singapore analyst Alfie Yeo is keeping “buy” on ISOTeam (ISO) at a target price of 5 cents after the group successfully raised $10.3 million in a rights issue exercise.

The renounceable non-underwritten 1-for-1 rights issue in August was oversubscribed to raise cash. Of the proceeds, 70% was for general working purposes while the remaining 30% was to repay ISOTeam’s banking facilities.

The additional working capital will also enable it to take on larger projects.

“The [rights issue] has impacted [ISOTeam’s] share base, and all per share matrices including share price and earnings per share (EPS), which will have to be theoretically adjusted,” says Yeo in his report dated Sept 29.

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Following the rights issue, Yeo adds that he had ISOTeam’s expected share price and EPS to fall by half if fully subscribed. This is while its share base doubles and net profit remains unadjusted.

“Our new target price at 5 cents is effectively a result of a doubled share base,” he writes.

Further to its report, Yeo remains positive on ISOTeam’s outlook with its “swelling” orderbook at $197 million at the beginning of August. This is higher than the past four financial year-ends (FYEs), he adds.

“Projects secured in FY2023 have been strong, at $131 million, close to the $139 million secured during the general election year in FY2020,” Yeo continues.

Furthermore, Singapore’s construction GDP growth has been strong in 2023, which came in at 7.2%, 6.9% and 6.8% for the first three quarters respectively. The strong momentum is expected to continue, says Yeo.

“More public project opportunities going forward include facade enhancement and home improvement programmes, repainting and upgrading works at HDB flats, town councils, neighbourhoods, hawker centres, parks and government buildings. We believe winning more of such projects will boost its orderbook even further,” he writes.

ISOTeam’s FY2023’s core loss of $1 million, was also in line with Yeo’s expectations. “We anticipated core earnings close to breakeven levels,” he says.

Its revenue, which grew by 14% y-o-y to $100 million, also stood within his estimates. ISOTeam’s revenue growth was driven by repairs and redecoration (R&R), coating and painting (C&P) and other segments, which grew 19%, 43%, and 34% or y-o-y to $35 million, $14 million and $28 million respectively, off the back of the post-pandemic recovery of projects, the analyst notes.

To this end, Yeo has kept his earnings estimates largely unchanged as FY2023’s performance was in line.

Downside risks noted by the analyst include the continuing rise in raw material and labour costs, whilst key drivers noted include contract wins, merger and acquisitions (M&A) as well as margin improvement.

Shares in ISOTeam closed flat at 42 cents on Sept 29.

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