The weaker performance, Ng notes, was primarily driven by delayed project commencements in ISOTeam’s repairs & redecoration (R&R) and coating & painting (C&P) segments, partially offset by strong growth in the addition & alteration and others segments.
He adds that although the group’s gross margin improved modestly on better project mix and pricing, earnings were further weighed down by lower other income and a higher effective tax rate.
“We view these as timing related execution challenges rather than structural issues. As of Aug 27, the group’s order book stood at $181.1 million, which is expected to be recognised progressively over the next two years,” writes Ng in his Sept 1 report.
In the FY2025, ISOTeam strengthened its strategic positioning through both mergers and acquisitions and partnerships.
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Firstly, the group acquired the remaining 49% stake in Zara@ISOTeam, giving it full control of its interior design and retrofitting subsidiary, a move that Ng notes “not only broadens its interior solutions offering but also enhances margin capture from integrated projects”.
The group also entered into an exclusive partnership with Design@Loft Architects to capture rising demand from the dormitory upgrading segment, while on the technology front, it advanced its BuildTech initiatives, piloting autonomous facade painting drones and indoor robots.
Ng writes: “These are expected to be commercially deployable by end of FY2025, with the potential to cut manpower requirements significantly. These developments provide near-term visibility and long-term scalability.”
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Meanwhile, in February, the Ministry of National Development and Housing Development Board (HDB) announced a commitment of some $165 million for the Neighbourhood Renewal Programme and Silver Upgrading Programme, covering 36,000 households. In addition, the government also announced $135 million for the upgrading of 32 private estates over five years.
On this, Ng sees that ISOTeam is well-positioned to benefit from the sustained public sector spending on estate renewal and sustainability. “The Home Improvement Programme remains a major driver, with about 29,000 flats announced for upgrading works, representing a multi-year pipeline,” writes the analyst.
He adds that the Green Towns programme adds further visibility, where HDB towns are set to receive heat-reflective paint application, which he notes is a $60 million opportunity. These initiatives provide a steady stream of projects supporting the group’s growth outlook, Ng notes.
Although opportunities are plenty, Ng sees that project execution remains the key risk for ISOTeam, as seen from the FY2025 earnings miss, which “showed how project delays in R&R and C&P can materially affect” earnings.
He continues: “Heavy reliance on public sector tenders also exposes ISOTeam to intense pricing competition and rising labour and material costs. While BuildTech solutions offer upside, their benefits depend on timely approval and scaling.”
Overall, ISOTeam’s order book of $181.1 million provides revenue visibility for the next two years, with the addition of being underpinned by public sector upgrading works.
As at 3.27pm, shares in ISOTeam are trading flat at 8.3 cents.
