Thursday, 16 February 2017

ISOTeam - HY2017 Results

ISOTeam released their half year 2017 results on 13 February and I'm viewing it with mixed feelings. It's a decent (stable), but far from spectacular, set of results.
  • Earnings per share of 1.43 cents failed to hit my estimate of 1.986 cents to justify their run up in price from $0.31 to $0.42. In fact, the earnings per share over the corresponding period for HY2015 was even higher at 1.49 cents. 
  • Revenue increased by 0.1% from $44,754,000 to $44,689,000. 
    • Considering that they expanded into Myanmar, and I quote from the presentation slide: 
    • "won 4 new contracts in November and December 2016 including Times City, a mixed-use development located on 10 acres in central Yangon" 
    • Winning their first Home Improvement Project (HIP) project, etc. 
    • Shouldn't the logical result be an increase in revenue, ceteris paribus? 
  • Gross profit increased by 15.8% helped by a decrease in cost of sales by 4.9%
    • I can understand if cost of sales increased due to higher manpower required to tackle the new segments, but decrease in cost of sales despite expanding into new segments is commendable. 
  • Profit for the period declined by 6.5% after factoring in taxes and other expenses
  • Net cash used in operating activities of -$1,490,000, with the bulk of it going into contract work in progress and trade and other payables. 

With the above being said, prospect still look bright for ISOTeam. If, and that's a big if, the first foray into Myanmar is positive for them, it opens up a new market which they can replicate their operations with what they are currently doing in Singapore, thereby achieving economies of scale. Remember how Myanmar play was all the hype when they started allowing foreign investments and many companies are vying to develop the place up? A few years have passed and time is about ripe for ISOTeam to do the necessary refurbishments or touch up works for the properties developed then.

Synergies with Nippon Paint will likely give them an added advantage into clinching new contracts by entering into markets that Nippon Paint has a presence in. Being the second largest shareholder of ISOTeam with 5.58% ownership, it bodes well for them if ISOTeam performs well too.

Market is forward looking, hence even with STI in deep red, it ISOTeam only dropped by 1 cent to close at $0.405 on 14 Feb 2017. Probably the growth story is still viewed positively and market are pricing it at a premium to factor in future growth. For me, I will not be vesting in ISOTeam as there is no significant margin of safety at the moment.

Disclaimer: I'm currently not vested in ISOTeam. The above information are based on my limited understanding and does not constitute a buy or sell call. Always do your own due diligence before taking any actions. 

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