KGI Securities (Singapore) Pte. Ltd.

May 8, 2025

ISOTeam Ltd: Riding the Wave of Singapore’s Public Sector Upgrading and Green Initiatives

Investment Thesis: An In-Depth Look at ISOTeam Ltd (ISO SP/5WF.SI)

ISOTeam Ltd is strategically positioned to capitalize on Singapore’s sustained public sector upgrading and green initiatives. The company posted a robust 1H25, with net profit rising by 36.5% year-over-year (YoY) to S\$1.9 million. Revenue grew by 4.2% YoY to S\$65.4 million, underpinned by stronger contributions from the Addition & Alteration (A&A) segment [[1]]. Gross profit climbed by 18.4% YoY to S\$9.9 million, with the margin expanding to 15.1%, up from 13.3%, sustaining healthy pre-pandemic levels [[1]]. As of February 2025, ISOTeam’s outstanding order book stood at S\$188.7 million, providing clear revenue visibility through FY29 [[1]]. Management has guided a minimum 30% of net profit after tax dividend policy for FY25, up from 25% in FY24, reflecting confidence in sustained earnings recovery and a robust project pipeline [[1]]. KGI Securities initiates an OUTPERFORM recommendation with a 12-month target price (TP) of \$0.100 [[2]].

1H25 Performance: Margins and Revenue Boost

ISOTeam delivered a strong performance in 1H25, with revenue rising by 4.2% YoY to S\$65.4 million, up from S\$62.7 million in 1H24. This growth was driven by higher contributions from its Addition & Alteration (A&A) segment, which saw a 61.6% YoY jump in revenue to S\$30.3 million in 1H25, up from S\$18.7 million in 1H24 [[2]]. Gross profit rose 18.4% YoY to S\$9.9 million in 1H25, reflecting improved margins from projects secured post-COVID-19 [[2]]. Additionally, the company reported a net profit attributable to shareholders of S\$1.9 million, a 36.5% increase compared to S\$1.4 million in 1H24 [[2]].

Structural Tailwinds Underpin Multi-Year Growth Visibility

ISOTeam is well-positioned to capitalize on Singapore’s sustained public sector upgrading and green initiatives. Its core Repairs & Redecoration (R&R) and Addition & Alteration (A&A) services align with recurring programmes like the Home Improvement Programme (HIP), Neighbourhood Renewal Programme (NRP) and the planned launch of over 50,000 BTO flats from 2025-2027 [[2], [3]]. These works, typically recurring every five to ten years, underpin long-term revenue visibility [[3]]. ISOTeam has also expanded into sustainability-linked projects, such as solar installations with Singapore’s 2 GWp by 2030 target [[3]]. Its Coating & Painting (C&P) segment also supports HDB initiatives to mitigate the Urban Heat Island (UHI) effect through heat-reflective coatings [[3]]. The Group’s early adoption of robotics, drones, and AI-powered painting solutions enhances productivity and mitigates labour constraints [[3]]. Backed by its robust order book, ISOTeam offers clear earnings visibility and sustained multi-year growth potential [[3]].

Valuation & Action: Outperform Rating

KGI Securities initiates coverage on ISOTeam Ltd with an OUTPERFORM rating and a 12-month TP of S\$0.100, based on a Discounted Cash Flow (DCF) valuation, assuming a terminal growth rate of 2.0% and a WACC of 7.5% [[3]]. ISOTeam’s dominant position in public sector upgrading, which contributes over 80% of revenue, coupled with expanding exposure to green projects, underpins resilient cash flows and long-term growth [[4]]. With a healthy balance sheet, robust project pipeline, and increasing productivity from digitalisation, steady earnings growth and margin expansion over the medium term are expected [[4]]. The target price implies a potential upside of 31.8% from current levels [[4]].

Key Risks to Consider

Investors should be aware of potential risks, including macroeconomic slowdown, margin pressure due to competition, and lower-than-expected new order wins [[4]].

Financials & Key Operating Statistics

The following table summarizes key financial forecasts:

Source: Company data, KGI Research [[4]]

Investment Summary

• Price as of 8 May 25 (SGD): 0.076 [[5]]
• 12M TP (\$): 0.100 [[5]]
• Upside, incl div (%): 35.6% [[5]]
• Market Cap (\$mn): 54 [[5]]

Company Background

ISOTeam Ltd is a Singapore-listed building maintenance and estate upgrading specialist with over two decades of experience in both public and private sectors [[3]]. Incorporated in 1998 and listed on the Catalist board in 2013, ISOTeam has established a strong reputation as a key contractor for Singapore’s Housing & Development Board (HDB) and Town Councils, focusing on estate maintenance and building refurbishment [[3]]. The company’s core operations are anchored in Singapore, with a significant portion of its revenue derived from public sector infrastructure projects that enhance the liveability and sustainability of public housing estates [[3]].

Key Revenue Segments

ISOTeam’s business is structured around four key revenue segments:

• Repair & Redecoration (R&R): Cyclical maintenance and refurbishment of public housing estates, including facade repainting, waterproofing, and general estate upgrades [[3]].
• Addition & Alteration (A&A): Structural modifications and improvement works for public infrastructure, such as lift upgrading, neighbourhood renewal, and home improvement projects [[3]].
• Coating & Painting (C&P): Specialist coatings, waterproofing, and painting services for both public and private sector buildings, with growing capabilities in eco-friendly coatings [[3]].
• Others (Including Green Solutions): A diversified portfolio encompassing mechanical and electrical (M&E) works, interior design and fit-out, landscaping, and green solutions such as solar panel installations, energy-efficient retrofitting, and eco-friendly solutions aligned with Singapore’s Green Plan 2030 [[3]].

Technological Innovation – Drone Deployment

ISOTeam has actively integrated drone technology into its operations since 2021, initially for facade inspections and gradually expanding into painting and washing applications [[3]]. The company expects to deploy a fleet of 18 drones, 2 mapping drones, 13 painting drones and 3 washing drones, after securing Civil Aviation Safety (CAS) permits by the end of FY26 [[3]]. The use of drones has proven to improve operational efficiency substantially, cutting painting time by up to 50%, requiring just two workers versus nine painters for a single block [[3]]. The technology was successfully trialed at Build-to-Order (BTO) sites, and there is external interest, including from Malaysia, in adopting ISOTeam’s drone solutions [[3]]. The drones are co-funded in partnership with Nippon Paint, a long-term strategic partner of 20 years [[3]]. Beyond enhancing efficiency, drone deployment enhances recurring revenue opportunities, as existing buildings in Singapore require upgrades every five to seven years [[4]]. With internally funded drones and leasing models, ISOTeam can maintain margins while scaling operations [[4]].

Macroeconomic Outlook

Singapore’s economic outlook remains cautious amid rising external headwinds. The Ministry of Trade and Industry (MTI) recently downgraded the 2025 GDP growth forecast to a range of 0% to2%, down from the previous 1% to 3%, citing global trade tensions and softening external demand [[4]]. Sectors such as manufacturing and wholesale trade have weakened, with Singapore’s 1Q25 GDP growth slowing to 3.8% YoY and a 0.8% QoQ contraction [[4]]. To counter this, the Monetary Authority of Singapore has eased monetary policy to support domestic activity [[4]].

Despite these external pressures, domestic drivers remain robust. Construction demand is projected at S\$47bn-S\$53bn annually, anchored by several large-scale developments, such as Changi Airport Terminal 5 and the expansion of the Marina Bay Sands Integrated Resort, alongside public housing development and upgrading works, healthcare, and infrastructure projects [[4]]. The government has also committed up to S\$1bn over 20-30 years under the Hawker Centres Upgrading Programme 2.0 (HUP 2.0), alongside five new hawker centres to strengthen community infrastructure [[4]].

Additionally, Singapore’s carbon services sector is gaining traction with a fresh S\$20mn injection into the Carbon Project Development Grant, supporting early-stage carbon projects [[4]]. This initiative, coupled with Singapore’s growing network of carbon trading pacts, will drive sustained demand for eco-retrofitting and sustainability-linked services [[4]].

The Housing and Development Board (HDB) is also ramping up BTO supply, targeting more than 50,000 BTO flats to be launched, of which 12,000 flats with shorter waiting times from 2025 to 2027 [[4]]. This acceleration of residential developments will underpin steady demand for related maintenance, upgrading, and construction services [[4]].

Although the sector continues to face challenges from tight labour markets and elevated material costs, government schemes and digitalisation efforts are helping mitigate these pressures [[4]]. Initiatives under the Forward Singapore plan and Green Plan 2030, including infrastructure upgrading and sustainable construction, are set to sustain long-term demand [[4]].

Industry Outlook

Singapore’s Building Maintenance and Estate Upgrading market is poised for steady, long-term growth, underpinned by recurring demand from the cyclical maintenance of ageing HDB flats, private properties, and public amenities [[4]]. The Building and Construction Authority (BCA) forecasts total construction demand of S\$47bn-S\$53bn in 2025, with a stable pipeline of S\$39-46bn annually from 2026 to 2029 [[4]]. Flagship public sector programmes including the Home Improvement Programme (HIP), Neighbourhood Renewal Programme (NRP), and Green Towns Programme, will continue to generate a resilient flow of contracts in ISOTeam’s core R&R, A&A and C&P segments [[5]].

The sector’s fundamentals are further strengthened by the Hawker Centres Upgrading Programme 2.0 (HUP 2.0), which allocates up to S\$1bn over the next 20-30 years to revamp older hawker centres with climate-resilient, accessible, and community-oriented infrastructure [[5]]. The construction of five new hawker centres will also bolster mid-sized upgrading and redecoration works, which is within ISOTeam’s target project scope [[5]].

Meanwhile, the HDB’s accelerated BTO supply of 50,000 flats, with 12,000 flats offering shorter waiting times from 2025 to 2027 will drive sustained downstream demand for estate maintenance, upgrading, and ancillary services in the coming years [[5]].

Complementing these domestic infrastructure initiatives is Singapore’s ambition to position itself as a regional carbon services hub [[5]]. The S\$20mn Carbon Project Development Grant by the Economic Development Board (EDB), aimed at catalysing early-stage carbon projects, is opening new opportunities in carbon mitigation, eco-retrofitting, and sustainable construction [[5]]. Coupled with the national goal to increase solar deployment to 2 GWp by 2030, these trends are set to expand the market for contractors like ISOTeam with proven expertise in solar installations and green retrofitting [[5]].

Overall, the combination of robust public sector spending, sustainability-driven upgrades, and emerging carbon-related opportunities offers a broad and resilient pipeline of work for experienced players such as ISOTeam [[5]].

Company Outlook

ISOTeam is strategically positioned to capitalise on a multi-pronged pipeline of opportunities spanning public sector upgrading, sustainability projects, and estate rejuvenation [[5]]. The Group’s robust S\$188.7mn order book as of February 2025, equivalent to approximately 1.4x FY24 revenue, offers earnings visibility into FY29 [[5]].

The HUP 2.0 programme, alongside the construction of five new hawker centres, presents a long-term flow of mid-sized upgrading projects, aligning with ISOTeam’s core competencies [[5]]. Simultaneously, the BTO ramp-up supports recurring demand for estate maintenance, repairs, and upgrading works, while the S\$20mn Carbon Project Development Grant enhances prospects for ISOTeam’s green retrofitting and solar solutions businesses [[5]].

Under the Green Towns Programme, ISOTeam has been participating actively through its Coating & Painting (C&P) segment [[5]]. The Group has undertaken projects to apply special cool coatings at Tampines HDB blocks, which reduce surface temperatures and improve thermal comfort [[6]]. With an estimated S\$60mn in additional funding allocated to expand cool coating applications to HDB blocks in all estates by 2030, ISOTeam is well-positioned to scale its contributions in this space [[6]]. Complementary works under the programme, such as rooftop solar panel installations and energy-efficient upgrades at HDB-managed complexes, align directly with ISOTeam’s expertise, offering further growth avenues [[6]].

Management remains focused on scaling contributions from its core R&R, A&A, and C&P segments while expanding its green solutions and smart construction technologies [[6]]. Ongoing investments in robotics, drones, and AI-enabled solutions through ISOTeam BuildTech underscore management’s commitment to boosting productivity, enhancing project efficiency, and mitigating manpower reliance, laying the groundwork for higher margins and long-term value creation [[6]].

Key Competitive Advantages

Strategically, ISOTeam benefits from several key competitive advantages:

• Strong public sector clientele: Long-standing relationships with government agencies, including HDB, NEA, town councils, and statutory boards [[6]].
• High barriers to entry: Specialized BCA certifications, stringent licensing, and reputation-based tendering create defensible market positioning [[6]].
• Diversification into sustainability: Expansion into green construction services, including solar installations, cool coatings, and eco-friendly upgrades, aligns with rising demand [[6]].
• Healthy order book: The outstanding S\$188.7mn order book underpins near-term earnings certainty [[6]].

Strategic Transformation

To stay resilient amid rising manpower costs and tightening labour markets, ISOTeam is actively transforming its business by:

• Investing in automation, drones, and robotics to boost productivity [[6]].
• Deploying smart project management tools to enhance operational efficiency [[6]].
• Expanding into complementary, high-value, less labour-intensive services to diversify revenue streams [[6]].

This strategic pivot is expected to help sustain margins even in a tight construction labour environment, while positioning ISOTeam at the forefront of a digitalised, sustainable built environment ecosystem [[6]].

While industry-wide challenges such as labour shortages and cost pressures persist, ISOTeam’s adoption of drones, digitalisation, and robotics is expected to enhance productivity and mitigate manpower constraints [[7]]. With its diversified competencies and strong track record, ISOTeam is well-positioned to capitalise on structural trends across both traditional and emerging service lines [[7]].

1H25 Segmental Revenue

• Repair and Redecoration (R&R): 29% [[7]]
• Addition and Alteration (A&A): 46% [[7]]
• Coatings and Paintings (C&P): 12% [[7]]
• Others: 13% [[7]]

Revenue and NPAT Trend

• Revenue (\$’m) 1H25: 65.4 [[7]]

Political Tailwinds: General Elections as a Catalyst

Singapore’s 2025 General Elections (GE2025) could act as a near-term catalyst, with heightened momentum for municipal upgrading and infrastructure projects, core revenue drivers for ISOTeam [[7]]. Historically, post-election cycles have seen accelerated ward-level enhancements as Members of Parliament (MPs) expedite estate rejuvenation works to deliver on campaign pledges and constituency improvements [[7]]. Priority projects such as lift upgrading, hawker centre revitalisation, traffic alleviation, polyclinics, and community amenities all align well with ISOTeam’s competencies [[7]]. The Group’s deep public sector relationships and proven track record position it well to secure a meaningful share of these post-election projects, providing incremental support to its secured order book and earnings outlook over the near-to-medium term [[7]].

Resilient Structural Demand Anchored by Public Sector Upgrading Cycles

ISOTeam’s core businesses are firmly anchored in Singapore’s long-term estate rejuvenation and infrastructure upgrading policies, driving recurring demand for its R&R and A&A services, segments which together contribute over 70% of Group revenue [[8]]. These services benefit from mandated maintenance cycles, every 5-10 years, under flagship programmes such as the Home Improvement Programme (HIP), Neighbourhood Renewal Programme (NRP), and Green Towns Programme [[8]].

Further boosting long-term visibility are the budgets allocated for public housing upgrades and the introduction of the Hawker Centres Upgrading Programme 2.0 (HUP 2.0), which will revamp ageing hawker centres with improved accessibility, ventilation, and climate-resilient features [[8]]. The ramp-up in Build-To-Order (BTO) launches, 50,000 new flats between 2025-2027, also underpins medium-term demand for upgrading and maintenance works [[8]].

With over 80% of revenue derived from government-linked entities, ISOTeam benefits from payment security, stable contract flows, and insulation from macroeconomic volatility [[8]]. The large pipeline of public housing, around 102,300 new HDB flats launched between 2021 to 2025, ensures sustained demand [[8]]. ISOTeam’s proven execution track record and entrenched public sector relationships position it as a key beneficiary of Singapore’s recurring and expanding upgrading cycles [[8]].

Digitalisation and Robotics Unlocking Margin Expansions

To mitigate rising manpower costs and address Singapore’s acute construction labour shortfall of about 40,000-50,000 workers projected in 2025, ISOTeam has embarked on a strategic transformation towards automation and digitalisation [[8]]. Through ISOTeam BuildTech, the Group is rolling out advanced solutions, including drone-enabled facade inspections, autonomous painting and cleaning robots, with commercialisation expected by FY26, and Building Information Modelling (BIM) [[8]].

These innovations boost project efficiency, reduce reliance on manual labour, and enhance safety and quality, strengthening ISOTeam’s competitive edge in government and private sector tenders [[8]]. Notably, its upcoming facade cleaning and painting drones are set to halve labour requirements and cut project timelines by up to 50% [[8]]. In the medium term, ISOTeam BuildTech could evolve into a new revenue stream offering managed robotics services to external firms [[9]]. As productivity gains compound and digital tools scale across more projects, ISOTeam is poised to expand operating margins structurally, improve tender competitiveness, and enhance overall financial resilience [[9]].

Tapping into Singapore’s Green Economy and Carbon Market

ISOTeam is well-positioned to capitalise on Singapore’s accelerated push toward sustainability and decarbonisation [[9]]. The Group’s competencies in solar panel installations, eco-retrofitting, and cool coating applications, deployed under the Green Towns Programme in Tampines HDB blocks, align directly with national initiatives [[9]]. Singapore’s target to quadruple solar deployment to 2 GWp by 2030, coupled with an estimated S\$60mn boost to expand cool coatings across all estates, provides a strong, multi-year demand runway [[9]].

Simultaneously, Singapore’s ambition to become a regional carbon services hub, bolstered by the S\$20mn Carbon Project Development Grant, opens new opportunities in carbon credit projects, feasibility studies, and sustainability-linked services [[9]]. ISOTeam’s integrated expertise in green retrofits, renewable energy installations, and energy-efficient upgrades positions it favourably to secure emerging contracts both domestically and in regional markets where Singapore has carbon trading pacts [[9]]. These trends complement ISOTeam’s core revenue segments, broadening its addressable market and enhancing its relevance in Singapore’s evolving green economy [[9]].

Profit Improvement and Strong Order Book Underpin Sustainable Earnings

ISOTeam’s impressive 80% YoY profitability growth in 1H25, underscores improved project execution, stringent cost control, and a shift toward higher-margin projects [[9]]. Revenue grew 4.2% YoY to S\$65.4mn, while gross profit rose 18.4% to S\$9.9mn, driving gross margins up from 13.3% to 15.1% [[9]]. Net profit swung to S\$2.3mn an increase from S\$1.3mn a year prior [[9]].

With a robust S\$188.7mn order book as of February 2025, about 1.4x FY24 revenue, earnings visibility is secured through FY29 [[9]]. Contributions from sustainability-linked projects, including solar installations, eco-retrofitting, cool coatings, and public sector upgrading contracts, are expected to complement core maintenance and infrastructure works [[9]]. As higher-margin, sustainability-oriented projects scale and productivity gains from digitalisation compound, ISOTeam is well-positioned to sustain earnings growth, deepen operating leverage, and deliver long-term shareholder value [[9]].

Order Book as of 31 December 2024

• Remaining order book (\$’m) 1H25: 178.6 [[9]]

Valuations and Peer Comparison

KGI Securities initiates coverage on ISOTeam with an OUTPERFORM rating and a target price of S\$0.100, derived from a Discounted Cash Flow (DCF) model [[10]]. The valuation is anchored on a cost of equity of 7.5% and a terminal growth rate of 2.0%, reflecting ISOTeam’s robust earnings visibility, strengthened balance sheet, and expanding exposure to sustainability-linked projects [[10]].

Key Valuation Drivers

• Sustained public sector demand: ISOTeam is well-positioned to benefit from recurring contract flows under Singapore’s long-term estate rejuvenation programmes, including the Home Improvement Programme (HIP), Neighbourhood Renewal Programme (NRP), Green Towns Programme, and the newly launched Hawker Centres Upgrading Programme 2.0 (HUP 2.0) [[10]].
• Accelerating growth from green solutions: National targets to quadruple solar capacity to 2 GWp by 2030, along with the S\$20mn Carbon Project Development Grant, open up significant opportunities for ISOTeam’s eco-retrofitting, solar installations, and heat reduction painting services [[10]].
• Productivity uplift through digitalisation and robotics: The deployment of drones, autonomous painting and cleaning robots, and Building Information Modelling (BIM) is expected to enhance project efficiency, mitigate labour constraints, and strengthen competitiveness, supporting structural margin expansion over time [[10]].

With diversified revenue streams, entrenched public sector relationships, and accelerating exposure to sustainability and digital solutions, ISOTeam is well-positioned for sustained earnings growth [[10]]. Its ongoing earnings recovery, healthier balance sheet, and solid S\$188.7mn order book provide a strong foundation for medium-term performance and long-term value creation [[10]].

Valuation Table

Source: KGI Research [[10]]

Key Risks

Potential risks that could impact ISOTeam’s performance include:

• Execution risk: Revenue is dependent on timely project completion and cost control [[11]].
• Labour availability and cost pressures: Manpower shortages and rising costs could squeeze margins [[11]].
• Tendering competition: Intense competition could exert downward pressure on tender pricing [[11]].
• Macroeconomic and policy risks: A weaker economy or changes in public policy could lead to project delays [[11]].
• Client concentration risk: Reliance on government contracts makes ISOTeam vulnerable to shifts in public policy [[11]].

Financial Summary

FYE 30 June	2023	2024	2025F	2026F	2027F
INCOME STATEMENT (SGD’ 000)
Revenues	110,400	130,168	135,963	146,628	156,023
Cost of sales	(99,338)	(109,996)	(114,889)	(123,901)	(131,529)
Gross profit	11,062	20,172	21,074	22,727	24,494
Other income	4,627	5,732	5,843	6,301	6,760
Marketing and distribution expenses	(814)	(733)	(1,052)	(1,014)	(1,055)
General and administrative expenses	(11,071)	(13,169)	(13,695)	(15,396)	(16,538)
Finance costs	(2,297)	(2,494)	(2,386)	(2,573)	(2,532)
Impairment loss on receivables and contract assets	(775)	(1,723)	(1,330)	(1,434)	(1,705)
Other expenses	(244)	(470)	(387)	(417)	(482)
Profit before income tax	488	7,315	8,068	8,195	8,941
Income tax expense	657	(711)	(1,372)	(1,393)	(1,520)
Profit	1,145	6,604	6,697	6,802	7,421
BALANCE SHEET (SGD’ 000)
Cash and cash equivalents	6,799	10,911	19,189	24,504	28,187
Other current assets	66,245	70,127	73,205	78,947	84,005
Total current assets	73,044	81,038	92,393	103,451	112,192
Property, plant and equipment	21,525	19,990	18,868	19,418	20,255
Other non-current assets	6,437	7,276	7,276	7,276	7,276
Total non-current assets	27,962	27,266	26,144	26,694	27,531
Total assets	101,006	108,304	118,537	130,145	139,723
Trade and other payables	24,337	25,433	26,897	28,561	30,551
Contract liabilities	2,265	1,635	2,389	2,532	2,698
Other current liabilities	31,780	25,583	28,583	26,583	26,583
Total current liabilities	58,382	52,651	57,869	57,675	59,832
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