"Dampeners to its immediate growth visibility include an 11% lower orderbook in FY2025 ended June vs FY2024, slower pace of revenue recognition, moderating construction GDP growth, and slow commercialisation of its drone technology," says Yeo.
Two months earlier, on Sept 25, Yeo had downgraded the counter from "buy" to "neutral" while holding his target price at 7.8 cents, as he warned of slow revenue recognition.
In addition, Yeo notes that the growth of Singapore's construction sector moderated in 3Q 2025, up 3.1% versus a jump of 6.2% in the preceding 2Q 2025.
For its FY2025, the company also reported an 11% lower order book of $162 million, down from $183 million in FY2024, potentially dampening future revenue available for recognition in the immediate term.
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The recent $10 million fund-raising was meant to help fund the commercial deployment of its drone fleet to be used for painting work.
"Full commercialisation of its drone technology will take time. With pilot projects targeted only from 4QFY2026, commercialisation is expected only in FY2027," notes Yeo, adding that another $2 million is needed for drone R&D costs.
"Even after drone commercialisation in FY2027, revenue should ramp up progressively before it benefits from a full year’s contribution in FY28F," reasons Yeo.
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"Most importantly, ISOTeam’s orderbook needs to grow. We await more project wins and for the pace of project recognition to pick up before we consider upgrading our stock recommendation to 'buy'," adds Yeo.
The $10 million raised recently is from a share placement, plus a convertible bond issue.
He warns that ISOTeam shareholders will face further earnings per share dilution when the bonds are up for conversion at 9.126 cents. Yeo estimates another 4.44% dilution when this happens.
"We look to price in this EPS dilution when bondholders consider converting their holdings into shares, at a level where our target price or the current share price is nearer to the conversion price," says Yeo.
Meanwhile, ISOTeam faces downside risks such as higher raw material and labour costs, slowdown in the pace and revenue recognition of projects, delay in launching its drone project, and a slowdown in new order wins resulting in a weaker orderbook.
ISOTeam shares closed at 7.8 cents on Nov 28, up 1.3% for the day and up 30% year to date.
