Revenue came in 8.4% lower y-o-y at $119 million, while 2HFY2025 core earnings amounted to $3 million, “well below” Yeo’s $9 million forecast. He writes: “The revenue miss was due to project delays, mainly led by the repairs and redecoration segment, which declined by 43% y-o-y to $29 million.”
While ISOTeam’s gross margin improved to 16% in the FY2025 from 15.5%, higher-than-expected operating expense (opex) caused the group’s earnings before interests and taxes (ebit) to drop by 11% y-o-y to $6.7 million.
With this, the group’s ebit margin narrowed by 2 percentage points (ppts) to 5%. Yeo writes: “Its orderbook was also comparatively lower as of FY2025 at $162 million. ISOTeam declared an unchanged final dividend of 8 cents per share, which was below expectations.”
At the same time, ISOTeam is raising $7 million in a new share placement and $3 million in 4% convertible bonds to fund its drone technology development for facade painting and washing, which is in the final stage of the approval process and commercial trials until commercialisation.
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The group is also raising $6 million to $8 million from a 3-month working capital loan from accredited and institutional investors under the SDAX Multicurrency CP Programme at 4.2% per annum.
“We impute a 12% dilution on our projected earnings due to the enlarged share capital as a result of the share placement. Our interest cost assumptions are largely unchanged, on higher debt but lower effective interest rates. We cut FY2026F earnings per share (EPS) by 30% as a result,” writes Yeo.
The analyst notes that in recent times, construction players have re-rated from 7 to 8 times forward price-to-earnings ratio (P/E) to 15 to 17 times currently, due to “optimism” in the market’s positive fund flows.
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Although Yeo has also pegged his P/E to 8 times from 6 times on ISOTeam to account for this bullishness, his target price has remained unchanged due to the cut in his earnings forecasts. He writes: “We have pegged ISOTeam at a discount to the peer average due to sustained execution risk, lower liquidity, and earnings volatility.”
Key drivers noted by him include contract wins, mergers and acquisitions and margin improvement. On the other hand, key risks include a rise in raw material and labour costs.
As at 2.32pm, shares in ISOTeam are trading 0.1 cents lower or 1.19% down at 8.3 cents.
