Despite the challenging economic condition, ISOTeam secured a series of new contracts worth $22.7 million, including a third and single largest renewable energy installation project, worth around $6.3 million.
ISOTeam is an eco-conscious Repairs and Redecoration (“R&R”) and Addition and Alteration (“A&A”) specialist in Singapore. I have previously covered this company in my blog before. Founded in 1998 and listed on Catalist of the Singapore Exchange, ISOTeam has successfully undertaken more than 300 public and private sector R&R and A&A projects for more than 3,000 buildings and counting since inception.
With market capitalization of only $121 million, ISOTeam is considered a small player in SGX. However, the company differentiates itself from its competitors by branding itself as an eco-conscious enterprise. They integrate green methodologies in their R&R, A&A and Others projects, and actively work with strategic partners and technology companies to develop and commercialise green solutions / products.
Its foray into the renewable energy segment is also in line with the government’s SolarNova programme, which aims to have solar power contribute 350 megawatt-peak (MWp) to Singapore’s energy supply by 2020. There were 400 HDB blocks with solar panels in 2015, and the programme targets to have around 5,500 blocks by 2020, or clean energy for 55,000 four-room flats annually.
I continue to like ISOTeam for its ability to keep winning contracts for performing maintenance works for HDB flats. The contracts secured are expected to have a positive impact on the earnings per share and net tangible assets per share for the current financial year ending 30 June 2017.
ISOTeam’s track record of winning tenders from town council probably played a part in its winning first HDB Home Improvement Programme project worth S$17.5 million on 26th January 2017. This contract marked an important milestone for the company and could pave the way for future tender wins.
Under the contract, ISOTeam will carry out the HIP scope of works at Blocks 236 to 242 Yishun Ring Road and Blocks 287 to 298 Tampines Street 22, including the repair of spalling concrete and structural cracks; the replacement of waste and soil discharge stacks; the replacement of pipe sockets with new clothes drying rack; the upgrade of electrical load; and, other optional improvement works chosen by individual homeowners. The S$17.5 million contract was awarded by the HDB and is expected to be completed by August 2018.
With so many contract wins since the start of 2017, it is important to build internal capabilities to handle the upcoming work. With this in mind, ISOTeam recently acquired Rong Shun Engineering & Construction Pte. Ltd. (“Rong Shun”) at an aggregate purchase consideration of S$6.45 million.
Rong Shun is principally engaged in the provision of electrical works including electrical installation, provision of fire alarm system, security system and all wire related works. The proposed acquisition will expand the Group’s capability to offer a full suite of engineering services and solutions such as mechanical and electrical (“M&E”), air conditioning, mechanical ventilation works, security, fire protection system as well as sanitary and plumbing services, which complement the Group’s existing capabilities in A&A, upgrading and renewable energy installation.
Looking at ISOTeam’s full year financial results for 2016, it seems like the management is doing a good job. Balance sheet was strong with current assets at $94.4 million and total liabilities at only $40.4 million. The Net Current Asset Value per Share (NCAVPS) is at $0.190 while Net Asset Value (NAV) was also about $0.19.
Except for R&R, revenue grew for the rest of the business units and this led to strong cash flow from operating activities – $15.6 million. ISOTeam’s ability to grow will largely be dependent on securing contracts for public sector maintenance works and managing labour costs. Singapore’s market is too saturated with many such construction related players and ISOTeam may need to venture overseas to increase revenue sources.
Notwithstanding the above, I love ISOTeam’s defensive and recurrent business model. Its growth story make a compelling case for investment and thus I will pay a premium for ISOTeam shares. Given the slew of latest contracts won, I would revise my entry-level upward and set it at $0.28.
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SG Wealth Builder