• Maintain BUY and SGD0.07 TP, 13% upside, c4% FY25F (Jun) yield. We remain positive on ISOTeam's earnings outlook, 1HFY25's earnings were within expectations. We see the group benefitting from and riding on more government projects ahead of the parliamentary elections due by the end of 2025. Our TP is based on blended 6x FY25F-26F P/E, rolled over from our FY25F earnings.
• 1HFY25 earnings within expectations. 1HFY25's earnings of SGD2m was in line with our expectations on the back of SGD65m (+4.2% YoY) revenue. Revenue growth was led by addition & alteration (A&A) (+62% YoY; SGD30m), offset by repairs & redecoration (R&R) (+29% YoY, SGD19m), and coating & painting (C&P) (-2% YoY; SGD7.5m), and others (-12% YoY, SGD9m) segments. The others segment include engineering works, renewable solutions works, vector control services and handyman services. Revenue decline in three of its segments was due to a slower pace of project recognition. Gross margins improved by 1.8ppts to 15.1%. EBIT margin rose by 1.2ppts to 5.4% due to more efficient opex spending and higher gross margin uplift. As a result, EBIT came in at SGD4m (+34% YoY). With recent projects tendered at better margins, it is outperforming the margins secured in 1HFY24.
• Maintain our positive outlook. The group's orderbook stood at SGD188.7m as at 7 Feb 2025 (FY24: SGD193.1m). With elections slated for no later than end 2025, we expect the Government to carry out more development and upgrading works ahead of the polls. These bode well for ISOTeam as it is a leading player in carrying out upgrading and development works for public projects - which include facade enhancement and home improvement programmes, repainting and upgrading works at Housing & Development Board flats, town councils, neighbourhoods, hawker centres, parks, and government buildings. We expect contribution for 2HFY25 to be stronger, boosted by more of such projects in its orderbook and a faster pace in its project revenue recognition.
• Construction demand to remain robust. The Building & Construction Authority (BCA) has projected construction demand and contracts awarded to range between SGD47bn and SGD53bn in 2025, backed by projects including upgrading works for public housing, Changi Airport Terminal 5, Marina Bay Sands expansion, construction of high-specification industrial buildings, other educational and healthcare developments, MRT network, Woodlands Checkpoint extension and Tuas Port. BCA has forecasted total construction demand of SGD39-46bn each year from 2026 to 2029.
• Downside risk includes a continuing rise in raw material and labour costs. As ISOTeam's ESG score is in line with our 3.1 country median, we impute a 0% premium/discount to its intrinsic value to derive our new TP.

Source: RHB Research - 13 Feb 2025