ISOTeam Ltd (5WF.SI) OUTPERFORM: KGI Securities Highlights Profit Recovery, Green Growth & Tech 1

KGI Securities (Singapore) Pte. Ltd. May 8, 2025
ISOTeam Ltd: Upgrading Singapore’s Landscape with Tech and Sustainability, Initiated with Outperform

Overview: A Leading Singapore Building Maintenance Specialist

ISOTeam Ltd, listed on the Catalist board since 2013 and incorporated in 1998, is a Singapore-based specialist in building maintenance and estate upgrading. With over two decades of experience in both public and private sectors, ISOTeam has built a strong reputation as a key contractor for Singapore’s Housing & Development Board (HDB) and Town Councils. The company’s operations are primarily focused on Singapore, with a significant majority of revenue stemming from public sector infrastructure projects aimed at enhancing the liveability and sustainability of public housing estates.
ISOTeam operates through four key revenue segments:

• Repair & Redecoration (R&R): Involves cyclical maintenance of public housing, including facade repainting, waterproofing, and general estate upgrades.
• Addition & Alteration (A&A): Covers structural modifications and improvement works for public infrastructure, such as lift upgrading, neighbourhood renewal, and home improvement projects.
• Coating & Painting (C&P): Provides specialist coatings, waterproofing, and painting services for both public and private buildings, with a growing focus on eco-friendly coatings.
• Others (Including Green Solutions): A diversified segment encompassing mechanical and electrical (M&E) works, interior design and fit-out, landscaping, and increasingly, green solutions like solar panel installations, energy-efficient retrofitting, and solutions aligned with Singapore’s Green Plan 2030.

Investment Highlights: Strong Recovery and Growth Prospects

The report initiates coverage on ISOTeam Ltd with an OUTPERFORM recommendation and a 12-month target price (TP) of S\$0.100. This positive view is underpinned by several key factors:

• Strong Profit Recovery and Margin Expansion: ISOTeam demonstrated a robust performance in 1H25, with net profit surging by 36.5% year-on-year (YoY) to S\$1.9mn. Revenue saw a 4.2% YoY increase to S\$65.4mn, primarily driven by stronger contributions from the A&A segment. Gross profit climbed significantly by 18.4% YoY to S\$9.9mn, leading to a margin expansion to 15.1%, up from 13.3%, sustaining healthy pre-pandemic levels. Net profit attributable to shareholders reached S\$1.9mn in 1H25, compared to S\$1.4mn in 1H24.
• Robust and Diversified Order Book: As of February 2025, ISOTeam held an outstanding order book of S\$188.7mn, providing clear revenue visibility extending through FY29. The company is well-positioned to benefit from recurring demand in upgrading, sustainability retrofits, and infrastructure enhancement projects.
• Technology-Driven Productivity Gains: ISOTeam is advancing towards the commercialisation of autonomous facade cleaning and painting drones by the end of 2025 via ISOTeam BuildTech. With 18 drones targeted (including 13 painting and 3 washing drones, plus 2 mapping drones) pending CAAS permits, this first-mover advantage is expected to significantly enhance efficiency and reduce labour reliance in maintenance works. Trials at BTO sites have shown up to 50% reduction in painting time and labour requirements (from nine to two workers).
• Attractive Dividend Prospects: Management has guided for a minimum dividend payout policy of 30% of net profit after tax for FY25, an increase from 25% in FY24. This reflects confidence in sustained earnings recovery and a strong project pipeline. The FY24 final dividend was 0.08 Singapore cents per share.

1H25 Performance: Margins and Revenue Boost

ISOTeam’s performance in the first half of FY25 highlights a positive trajectory. Revenue increased by 4.2% YoY, rising from S\$62.7mn in 1H24 to S\$65.4mn in 1H25. This growth was significantly boosted by the Addition & Alteration (A&A) segment, which experienced a 61.6% YoY jump in revenue, reaching S\$30.3mn in 1H25 from S\$18.7mn in 1H24. Gross profit saw a substantial rise of 18.4% YoY to S\$9.9mn, indicative of improved margins from projects secured post-COVID-19. The reported net profit attributable to shareholders was S\$1.9mn, marking a 36.5% increase from S\$1.4mn in 1H24. The report also notes a net profit swing to S\$2.3mn from S\$1.3mn a year prior, while gross margins expanded from 13.3% to 15.1%.

Structural Tailwinds Underpin Multi-Year Growth Visibility

ISOTeam is strategically positioned to leverage Singapore’s ongoing public sector upgrading and green initiatives. The core R&R and A&A services align with major recurring government programmes such as the Home Improvement Programme (HIP), Neighbourhood Renewal Programme (NRP), and the planned launch of over 50,000 BTO flats between 2025 and 2027. These cyclical maintenance works, typically occurring every five to ten years, provide long-term revenue stability.
Expansion into sustainability-linked projects, such as solar installations supporting Singapore’s 2 GWp by 2030 target and the application of heat-reflective cool coatings under HDB initiatives to mitigate the Urban Heat Island (UHI) effect, further strengthens ISOTeam’s market position. The adoption of robotics, drones, and AI-powered painting solutions enhances productivity and addresses labour constraints. Backed by its substantial order book, ISOTeam offers clear earnings visibility and sustained multi-year growth potential.
Political factors, such as the upcoming 2025 General Elections (GE2025), could also serve as a near-term catalyst, potentially accelerating municipal upgrading and infrastructure projects aligned with ISOTeam’s competencies.

Technology and Innovation: Driving Efficiency

ISOTeam’s commitment to technological innovation is a key differentiator. Since 2021, drones have been integrated for facade inspections and are being expanded for painting and washing. The planned deployment of 18 drones (13 painting, 3 washing, 2 mapping) by end-FY26, pending permits, is expected to halve labour requirements and project timelines. This drone technology, co-funded with long-term partner Nippon Paint, enhances recurring revenue opportunities for building maintenance and offers potential external leasing models. Digitalisation efforts, including smart project management tools and Building Information Modelling (BIM), further boost operational efficiency and mitigate manpower reliance, laying the groundwork for higher margins.

Tapping into Singapore’s Green Economy

ISOTeam is actively participating in Singapore’s sustainability push. Its expertise in solar panel installations, eco-retrofitting, and cool coatings (successfully applied in Tampines HDB blocks under the Green Towns Programme) aligns with national goals. Singapore’s target to quadruple solar deployment by 2030 and an estimated S\$60mn funding boost for expanding cool coatings across HDB estates provide significant demand. The S\$20mn Carbon Project Development Grant also opens doors for ISOTeam in carbon mitigation and sustainability services, positioning it for growth in Singapore and potentially regional markets with carbon trading pacts.

Valuation and Outlook

The OUTPERFORM rating and S\$0.100 target price are based on a Discounted Cash Flow (DCF) valuation, assuming a terminal growth rate of 2.0% and a WACC of 7.5%. This valuation reflects ISOTeam’s earnings visibility, strengthened balance sheet, and increasing exposure to sustainability projects. The target price implies a potential upside of 31.8% from the current price of S\$0.076 as of May 8, 2025, or 35.6% including dividends.
ISOTeam’s dominant position in public sector upgrading (contributing over 80% of revenue), coupled with expanding green project exposure, underpins resilient cash flows and long-term growth. A healthy balance sheet, robust project pipeline, and productivity gains from digitalisation are expected to drive steady earnings growth and margin expansion.

Key Risks

While the outlook is positive, potential risks include:

• Execution Risk: Delays or cost overruns in large projects could impact margins and revenue.
• Labour Availability and Cost Pressures: Persistent manpower shortages and rising wages in the construction sector could increase project costs.
• Tendering Competition: Intense competition for public sector contracts may pressure tender pricing and profitability.
• Macroeconomic and Policy Risks: A weaker economy or shifts in public policy could delay project rollouts.
• Client Concentration Risk: High dependence (80-90% of revenue) on government/public sector contracts makes ISOTeam vulnerable to changes in public policy or funding.

Financial Summary

Below is a summary of key financial and operating statistics for ISOTeam Ltd:

Source: Company data, KGI Research

The financial projections indicate steady revenue growth and stable profitability margins over the forecast period, supported by improving net gearing and attractive dividend yields.