Thus far, 2013 has been a year of exciting developments for the building maintenance and estate upgrading contractor, ISOTeam, which saw the company make a stunning debut on the Catalist Board of the Singapore Exchange and post a stellar set of financial results. Not resting on its laurels, the company is stepping up growth initiatives to ride the next green wave to greater heights.
ISOTeam first made impression when it hit the Catalist Board on 12 July 2013 with a sparkling debut; closing at $0.345 or 56.8 percent higher than its offer price of $0.22. And despite the volatility in the current market, ISOTeam continued to trade above water. Armed with its strong track record with a niche focus in eco-conscious repairs and redecoration (R&R) and addition and alteration (A&A) works, it is little wonder why the stock received a strong response in the placement of its initial public offering (IPO) and has continued to grab investors’ attention.
Sharing with Shares Investment in an exclusive interview, Anthony Koh Thong Huat, chief executive officer of ISOTeam, attributed the successful placement of ISOTeam to the strong support from the company’s vendors and suppliers. “The listing of ISOTeam not only allows the company to gain market recognition, but also provides another platform for us to grow the business,” Koh opined.
Niche Position With about 15 years of experience under its belt, ISOTeam has built a reputation for quality, reliability and safety that has distinguished itself from other players and gained a strong foothold in the industry. “We are amongst the top players in our R&R segment and have won around 39 percent of the projects awarded under the NRP [Neighbourhood Renewal Programme],” Koh shared. Notably, the company has also won tenders repeatedly for public sector projects even when their bid was not the lowest.
Highlighting its established partnerships, Koh noted that ISOTeam is the exclusive applicator for painting works in the Housing Development Board (HDB) and town council sector for both SKK and Nippon Paint Singapore. Koh pointed out that ISOTeam has established very strong working relationships with both paint companies over the years – 15 years with SKK and nine years with Nippon Paint – and sees the company continue their long-standing collaborations. “Nippon Paint is one of the strategic shareholders of our company and just recently in August, SKK granted the group exclusive applicator rights for JTC industrial projects, army camps and HDB industrial projects,” he added.
Bringing the spotlight onto the company’s capability to handle a wide spectrum of projects, Koh emphasised its team’s strong skillset and experience, especially its ability to take on projects in “live” buildings involving occupied buildings where there are numerous constraints such as stringent safety protocols as well as the need to minimise inconveniences to occupants and on-time delivery of project milestones.
According to Koh, ISOTeam’s core competencies in managing such projects are in its timing and process control as delays are often not tolerated as they equate to additional costs for everyone involved. As not all contractors are experienced and possess the know-how to take on such projects encompassing “live” buildings, ISOTeam’s strength in this area makes it well-positioned for such tenders.
Asked if the tightening labour laws will be a cause for concern, Koh explained that all labour intensive industries face this challenge so everyone will be on an equal footing dealing with this problem. However, given that the nature of ISOTeam’s work scope typically requires a short contract period of between six to 24 months, the contractor has advance notice and more flexibility to factor in pricing movements as well as changes in foreign labour policies compared to firms engaged in building new structures where construction periods can be locked in for several years.
Growth Drivers “Singapore still offers plenty of opportunities for us given the ever-growing market for maintenance works here and the fact that our current customers make up only a segment of the entire R&R and A&A market,” Koh said when asked about the company’s expansion plans. The recent government initiatives to build more homes and increase spending on public projects will also offer ISOTeam more work opportunities in five years or so, when these buildings need maintenance and upgrading works.
Even with a focus on projects in Singapore with similar current work scopes currently, ISOTeam has much room to expand its maintenance and upgrading works to other segments of the market such as commercial and office buildings, hospitals, schools and such, to reduce concentration risks on just public sector projects.
On ISOTeam’s long-time goal to expand its R&R and A&A work scope to other segments of the market, Koh said, “We have recently set up a 51 percent-owned private home renovation arm, Zara @ ISOTeam, to cater to landed property owners for their various property enhancement needs. We had received regular requests from home owners in the past for such services and we see this as the first logical step in our expansion plans. As property prices in Singapore are very high, we believe there will be steady demand for our services from homeowners who are willing to spend money to upkeep their properties to maintain their market values.”
Nonetheless, the group intends to ride on the buoyant industry backed by government initiatives to improve infrastructure as well as plans to upgrade old estates, construct new hawker centres and expand the existing network of sheltered linkways islandwide. Also, Singapore has a mandatory requirement of repainting building exterior walls every five years, which creates continuous demand for R&R works.
Significantly, ISOTeam has a strong order book of $81 million as at 14 August 2013 that will be realised over the next couple of years. This includes three newly secured contracts worth $10.9 million to provide R&R works to HDB flats in various estates. Actively tendering for projects, the estate maintenance contractor has also emerged as the lowest tenderer for another $27 million worth of R&R and NRP projects.
Riding The Green Wave As an early mover in implementing environmentally sustainable solutions, ISOTeam is also poised to benefit from Singapore’s Blueprint on sustainable development and legislation to green mark 80 percent of Singapore’s buildings by 2030. The company is also developing a number of green products with its partners, such as slip resistant floor coating in tandem with the needs of an ageing population as well as a nano-titanium dioxide photocatalytic coating that provides air purification and self-cleaning effects activated by light.
Also part of its ongoing initiatives to provide a wider spectrum of green solutions, it is exploring a possible collaboration with a research and development company to develop and install hydrogen powered backup generators to buildings. Using such fuel cells in generators would produce a clean, reliable and more cost-effective source of energy that would be very relevant for building owners.
“The green solutions will not only be cost effective for our clients, but also be a catalyst to our future financial performance,” Koh said enthusiastically and added that he is positive on the company’s earnings visibility as well as its ability to scale greater heights.
Growing Numbers Backed by an experienced management team, Koh notes that the company’s strategies and continuous efforts to build its capabilities are paying off. Commenting on the decline in the bottom line seen in FY11, Koh attributed it to the management’s decision to increase spending to invest in human resource and equipment in order to tap into the increase in government initiatives for upgrading works. Indeed, the results speak for themselves as FY12’s revenue grew 44.5 percent to $35.4 million while earnings jumped substantially from $0.1 million to $3 million.
ISOTeam continued this growth momentum in the latest financial results for the full year ended 30 June 2013, reporting a 36.2 percent jump in revenue to $48.2 million, underpinned by its NRP work for town councils of Marine Parade, Tampines and Chua Chu Kang along with R&R work for the Pasir Ris-Punggol Town Council. The healthy top line growth translates to a commendable compounded annual growth rate of 21.8 percent over the last three years. The company also saw FY13 earnings doubled to $6 million, which included a gain of $4.2 million from the disposal of its leasehold property. Notably, excluding the one-time gains from disposals and IPO expenses, its profit before tax was up 33.4 percent from $2.5 million to $3.3 million.
Based on its closing price of $0.305 on 11 September and FY13’s earnings, ISOTeam’s price-to-earnings ratio is trailing at 6 times. Given that there is no fixed dividend policy and with nothing to this end announced during its IPO exercise, it is noteworthy that ISOTeam is also recommending a final cash dividend of $0.01 per share for FY13, representing a payout of 19.6 percent of its net profit after tax and works out to a decent dividend yield of 3.3 percent.
With its niche positioning and robust developments, 2013 could just be the beginning of more opportunities and stronger achievements for the company as it gears up for the next wave of growth. We certainly can’t wait to see what’s next for ISOTeam!
About Shares Investment Shares Investment is an investment magazine that measures the pulse of the markets, and provides readers and the investment community with facts, figures, investment analysis and insights to allow them to make better informed investment choices. Shares Investment gives its readers a unique experience by knowing what investors really want to see, and need to see.
