Latest Earnings From ISOTeam Ltd: Strong Growth Ahead?

Last Friday, ISOTeam Ltd (SGX: 5WF) reported its results for the first-half of its fiscal year ending 30 June 2016 (FY2016). The reporting period was for 1 July 2015 to 31 December 2015.

As a brief background, ISOTeam’s business lies in building maintenance and estate upgrading in Singapore. Having been founded in 1998, the company has over 15 years of experience in its two main business divisions: Repairs & Redecoration and Addition & Alteration.

The company’s clients include town councils, government bodies, and private sector building owners.

Financial highlights

With the above as a backdrop, here’s a quick summary of the latest financials from ISOTeam:

  1. For the six months ended 31 December 2015 (1H2016), revenue grew 14.7% to S$44.7 million compared to the same period a year ago.
  2. But, profit attributable to shareholders was up by a mere 4.7% to S$4.3 million. The bottom-line was crimped by higher costs associated with the firm’s expansion and acquisition activities. Notably, increased staff and overhead costs – related to business expansion and new acquisitions – as well as higher depreciation had led to a 62.9% jump in general and administrative expenses to S$5.4 million in 1H2016.
  3. ISOTeam’s earnings per share for 1H2016 actually saw a 13.8% year-on-year decline to 2.99 Singapore cents. This fall in EPS was driven by a higher share count (an increase from 117.6 million shares to 142.93 million) due to new shares issued by ISOTeam for a private placement and the acquisition of subsidiaries.
  4. For 1H2016, cash flow from operations came in at S$5.37 million while capital expenditure (capex) stood at S$4.13 million. This gave ISOTeam S$1.24 million in free cash flow, down significantly from the S$6.1 million in free cash flow seen a year ago (S$6.46 million in cash flow from operations and S$0.35 million in capex).
  5. As of 31 December 2015, ISOTeam had a pristine balance sheet with S$32.95 million in cash and equivalents and total borrowings (including finance leases) of just S$5.3 million.

To sum up ISOTeam’s performance for the first-half of its fiscal year, the company had achieved higher sales and profit. But, these were driven mainly by acquisitions (more on this later). Meanwhile, ISOTeam’s growth had also come at the expense of its existing shareholders as alluded to by the big 22% jump in its share count.

The good thing is ISOTeam’s balance sheet still remains strong.

Operational highlights

The company’s businesses can be split into four main operating segments: Repairs & Redecoration (R&R), Addition & Alteration (A&A), Coating & Painting (C&P) and Others. Here’s a breakdown of how the company’s top-line had changed for each individual segment:

ISOTeam segment results
Source: ISOTeam’s earnings release

From the table above, it’s easy to see that the R&R segment contributes the lion’s share of revenue for ISOTeam. Unfortunately, the segment’s revenue saw an 18.1% decline to S$24 million as compared to the previous year. Meanwhile, the A&A business – the second largest revenue driver – managed to clock in healthy revenue growth of 19.2%.

ISOTeam’s remaining two segments – C&P and Others – were big contributors to the company’s revenue growth. C&P came about from ISOTeam’s acquisitions while growth in Others had been propelled by projects from the public sector.

Prospects and valuation

Looking ahead, there seem to be some positive on-going developments for ISOTeam:

  1. The company ended 1H2016 with an order book of S$89.7 million, an all-time high. At the moment, the company’s also the “lowest tenderer for three projects pending tender award confirmation” that have a combined value of roughly S$10.4 million.
  2. In December 2015, ISOTeam announced its fifth acquisition in 15 months. The target this time is TMG Projects, an architectural and interior fitting and decoration solutions provider. ISOTeam commented that the TMG Projects acquisitions will enable it to “expand its footprint into other untapped sectors and industries such as shopping malls, real estate investment trusts, factories, schools, hospitals, office, high-end hotels and residences.”
  3. ISOTeam’s executive director and chief executive, Anthony Koh, commented in the earnings release that he’s looking for overseas expansion opportunities for the company.

At its closing price of $0.60 last Friday, ISOTeam has a trailing price-to-earnings ratio of just 9.

If you'd like to keep updated on the latest company and financial news, sign up now for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock Singapore

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo owns shares in ISOTeam.