ISOTeam Ltd (ISO SP): Autonomous Painting Drones & BuildTech Solutions – Stock Analysis & Recommendation

CGS International

April 15, 2025

ISOTeam Ltd: Autonomous Painting Drones to Revolutionize Construction & Drive Growth

ISOTeam Ltd: An Initiation with Significant Upside Potential

ISOTeam Ltd (ISO SP) is poised for substantial growth, with Profit After Tax and Minority Interest (PATMI) expected to triple in FY25F due to post-Covid-19 contracts secured at higher margins. A further 26% increase is projected in FY26F, driven by the utilization of autonomous painting robots. The commercialization of BuildTech solutions presents a re-rating catalyst, offering new asset leasing revenue and geographical diversification opportunities.

• Initiate with an Add rating and a target price of S\$0.096.
• Attractive FY26F dividend yield of 5.2%.

FY25F/26F PATMI Growth: Higher Margins and BuildTech Solutions

Profit margins are expected to improve, driven by:

• Execution of input cost-adjusted pricing on contracts secured post-Covid-19.
• Utilization of drones, potentially reducing painting-related costs by 30-40% and increasing productivity. Painting constituted approximately 30% of ISO’s total work as of FY24.

Gross Profit Margin (GPM) is forecasted to be in the range of 18-20% in FY25F-27F (FY24: 15.5%) as ISO’s façade painting drone and indoor painting robot are likely to be ready for internal deployment in 1HFY6/26F. Scenario analysis suggests GPM could reach 27% assuming 100% painting drone utilization.

ISO’s competitive cost structure and improved productivity could enable it to increase its market share, specifically in the coating & painting (C&P) segment, leading to a surge in core PATMI in FY25F/26F.

New Revenue Streams and Geographical Diversification

ISO’s artificial intelligence (AI)-enabled autonomous façade and indoor painting robots, the first of their kind in Singapore, will be fully patented and owned by ISO. The potential for commercializing its suite of BuildTech solutions is a re-rating catalyst, allowing ISO to establish a new revenue stream involving asset leasing. This scalable model presents geographical diversification opportunities, with markets such as Australia & Japan being possible targets due to high labor costs.

Orderbook Supported by Government Initiatives and ESG Trend

ISO’s business is highly recurring, supported by government initiatives such as:

• Façade Enhancement Programme
• Home Improvement Programme (HIP)
• Neighbourhood Renewal Programme (NRP)
• Hawker Upgrading Programme (HUP)
• Estate Upgrading Programme (EUP)

The order book grew 9.8% year-over-year in FY24, reaching S\$191.3m as of end-FY24, with approximately 75% of contracts coming from the public sector. As of 7 Feb 2025, ISO’s orderbook stood at S\$188.7m.

Initiate Coverage with Add and Target Price of S\$0.096

Initiate coverage on ISO with an Add call for its recurring business model and profit and margin recovery. The target price is based on 8x FY26F P/E, a 16% discount to local listed peers due to its smaller scale. ISO is trading at an attractive FY26F dividend yield of 5.2%. Key re-rating catalysts include stronger-than-forecast orderbook growth and the potential commercialization of its BuildTech solutions. Downside risks include delays in contract completion and cost and availability of foreign labor and subcontractors.

Financial Summary

The broker provided the following table.

Investment Thesis: Leveraging Technology in a Recurring Business

BuildTech: Margin Uplift and Potential New Revenue Stream

Painting constituted approximately 30% of total work undertaken by ISO as of FY24. The façade painting drone and indoor painting robots, expected to be deployment-ready in 1HFY6/26F, will be able to reduce painting-related costs by 30-40%. ISO’s competitive cost structure, improved productivity, and workload bandwidth would enable it to increase its market share, specifically in the coating & painting (C&P) segment.

ISO will receive 18 drones, including two surveying drones, three washing drones, and 13 painting drones. The painting drones are currently in the live testing phase and are estimated to be ready for internal deployment in 1HFY6/26. These 18 drones will be able to undertake 35%/25% of the C&P workload in FY26F/FY27F. ISO may increase its drone fleet as early as 2HFY6/26F.

Based on scenario analysis, assuming:

1. 30% C&P cost savings from drone utilization
2. ISO invests in more drones in FY27F-28F
3. 100% drone utilization in FY28F

Potential FY28F GPM of approximately 27% and EBITDA margin of 15%.

Exclusive Applicator and Technology Leadership

ISO has been Nippon Paint Singapore’s exclusive applicator of paint works for repairs and redecoration (R&R) projects for the Housing Development Board (HDB), Town Council, and National Parks Board of Singapore since 2004. With the launch of its autonomous painting robots, ISO will be the first contractor in Singapore with this technology, owning all intellectual property and hard/software.

Commercialization of BuildTech Solutions

Management sees the opportunity to commercialize its BuildTech solutions and may explore offering AI Internet of Things (IoT) Platform Solutions for smart building management systems. This is a rerating catalyst for ISO, allowing it to establish a new revenue stream from asset leasing. This scalable model also presents opportunities for geographical diversification. Markets with high labor costs, such as Australia and Japan, are potential target markets.

ISO’s foray into BuildTech began in 2021, collaborating with technology partners H3 Dynamics and Acclivis Technologies to develop four BuildTech solutions:

• (manned) façade inspection drone (launched in 2022)
• autonomous façade washing drone (launched in Jun 2024)
• autonomous façade painting drone (estimated deployment ready date: 1HFY6/26F)
• autonomous indoor painting robot (estimated deployment ready date: 1HFY6/26F)

As of Jul 2024, ISO’s façade inspection drone had conducted inspections of more than 800 HDB blocks since its launch, increasing the company’s productivity by over 400%. ISO is one of the pioneers to use autonomous façade painting drones and indoor painting robots in Singapore.

Orderbook Supported by Government Initiatives

ISO’s orderbook has increased over the years, supported by new government programs and the renewal and expansion of national refurbishment and upgrading initiatives. Public sector contracts account for approximately 75% of ISO’s orderbook. The Singapore market is at the start of a construction upcycle, with the Building Construction Authority (BCA) projecting construction demand of between S\$31bn and S\$38bn per year over 2025F-28.

Recurring Revenue Streams: R&R and A&A Segments

Repairs and Redecoration (R&R)

The R&R segment is highly recurring, as part of the general maintenance and upkeep of existing buildings. Supported by:

• HDB blocks will be repainted at least once every 7 years, in accordance with MND’s recommended schedule.
• The Periodic Façade Inspection (PFI) protocol requires façades of buildings older than 20 years and above 13m tall to be inspected every seven years.
• Under the S\$338m Facade Enhancement Programme, more than 4,000 or approximately 40% of all Housing Board blocks islandwide will undergo enhancements and repair work from Mar 2023 to Mar 2029F.

Addition and Alteration (A&A)

The addition and alteration (A&A) orderbook is supported by:

• Under the S\$338m Facade Enhancement Programme.
• Launched in 2007, the Home Improvement Programme (HIP) seeks to rectify common maintenance issues related to ageing flats. S\$407m will be allocated to upgrade some 29,000 flats built on or before 1997.
• The Neighbourhood Renewal Programme (NRP) focuses on block and precinct improvements for blocks built on 1995 or earlier. More than S\$165m will be allocated to 17 projects.
• MND announced S\$135m had been set aside under the Estate Upgrading Programme (EUP).
• Under the Hawker Upgrading Programme (HUP), the government will set aside up to S\$1bn to upgrade existing hawker centers and build another five new hawker centers over the next 20 to 30 years.

Coating and Painting (C&P)

ISO’s coating and painting (C&P) projects include the painting of newly constructed buildings in private and public sectors. Supported by:

• ISO stands to benefit from the robust Housing Development Board build-to-order (HDB BTO) pipeline as of Feb 2025, comprising approximately 100k units under construction and approximately 50k units slated for launch over 2025F-27F.
• Painting of various healthcare, education and private residential projects under construction.

Other Segments

Orderbook for the company’s “Others” segment supported by:

• Under the SolarNova programme, HDB aims to achieve solar power generation of 540MWp by 2030.
• Under the Green Building Masterplans, the BCA also aims to have at least 80% of Singapore’s buildings green certified by 2030F.

Financials: Revenue Growth and Margin Expansion

New Contract Pricing and Higher C&P Market Share

Labor and raw material costs escalated during the pandemic, resulting in margin compression for contracts secured prior to the height of Covid-19. The last of ISO’s pre-Covid-19 contracts were recognized in FY24, and its current orderbook of S\$188.7m as of Feb 2025 reflects new input cost-adjusted pricing. FY25F-27F revenue and profit margins are expected to be driven by the execution of input cost-adjusted pricing on contracts secured post-Covid-19, and the utilization of drones.

ISO’s began using façade inspection and façade washing drones in 2022 and Jun 2024, respectively, while it expects its façade painting drone and indoor painting robot to be ready for internal deployment in 1HFY6/26F. The utilization of the façade washing and painting drones will lower cost by 30-40% by reducing labor expenses and equipment costs. This has tremendous financial implications for ISO, and its competitive cost structure, increased workload bandwidth, and productivity should enable it to increase its market share from FY26F onwards, specifically in the C&P segment.

EBITDA Margins Normalizing

GPM and EBITDA margins recovered from 0.5% and -1.9%, respectively, in FY21 to 15.5% and 8.1%, respectively, in FY24. GPM/EBITDA margins will continue to widen through FY25F-27F.

Positive Operational Cashflow and Healthy Balance Sheet

Operating cashflow turned negative during the Covid-19 years of FY21-23 due to higher raw material and labor costs. With the last of ISO’s pre-Covid-19 contracts recognized in FY24, operating cashflow is expected to improve as ISO executes new contracts secured at better margins.

In line with ISO’s recovering profitability, the net debt ratio will decline from 63.1% in FY24 to 14.0% in FY27F. Similarly, aggregate leverage is expected to decline over FY25F-27F.

Higher Dividend Payout Policy

ISO ceased dividend payments during the Covid-19 years of FY20-23. Since then, the company committed to a dividend payout ratio of not less than 25% for FY24 and not less than 30% for FY25F onwards. This reflects management’s confidence in its business outlook and ability to sustain a higher dividend payout policy.

FY25F DPS of 0.28 Scts, 251% higher than the 0.08 Scts announced for FY24, and expect to see FY26F/27F DPS grow 31%/23% year-over-year, bringing FY27F DPS to FY19 levels. There is more room for ISO to raise its dividend policy in the mid-term given the projection for positive core EPS growth over FY25F-27F and its strengthening net debt position.

Valuation and Recommendation: Initiate with Add and TP of S\$0.098

Initiate coverage on ISO with an Add rating and target price of S\$0.098, representing 51% upside potential from the 11 Apr 25 share price of S\$0.065. ISO has:

1. Strong recovery in margins
2. First mover advantage in autonomous façade/indoor painting robots
3. Construction upcycle in Singapore
4. New revenue and geographical diversification potential of its BuildTech solutions

Core PATMI is expected to triple in FY25F on new contracts with better margins and increase by 30% in FY26F on higher C&P market share.

The target price is based on a 8.0x FY26F P/E, a 16% discount to local listed peers due to its smaller scale. ISO is trading at an attractive FY26F dividend yield of 5.2%. ISO’s current valuation is undemanding at 5.7x FY26F P/E, -0.7 s.d. from its 10-year (excl. Covid-19) historical average P/E.

Key Risks

• Supply chain disruption – reliance on imported materials exposes ISO to risk of global supply chain disruptions.
• Regulatory changes and risks associated with the use of foreign labour – ISO’s business is dependent on foreign labor, making ISO vulnerable to regulatory changes.
• Environmental risks – more volatile weather brought on by climate change could disrupt project timelines.

Company Background

Established in 1988, ISO has undertaken over 860 refurbishment and upgrading projects for over 7,200 buildings in Singapore as of Jun 2024. In Singapore, ISO is the exclusive paint applicator for Nippon Paint Singapore for the public housing sector, Jurong Town Corporation (JTC) and Housing & Development Board (HDB) industrial projects and army camps. Operates four main segments:

• Repairs and redecoration (R&R, 39% of FY24 revenue) – recurring business of non-structural construction, improvement and routine maintenance.
• Addition and alteration (A&A, 35% of FY24 revenue) – involves structural and general building works.
• Coating & Painting (C&P, 13% of FY24 revenue) – refers to coating and painting across industrial, commercial and residential segments.
• Others (13% of FY24 revenue) – includes home retrofitting business, landscaping works, interior design, leasing, mechanical & electrical engineering works, renewable solutions works, vector control services and handyman services

Within the Others segment, management identified the renewable solutions business as a growing segment.

SWOT Analysis

Strengths

1. First mover advantage utilizing AI-driven workforce – lowers cost structure and allows ISO to be more competitive
2. Long track record and credibility owing to 19 years of experience in the building maintenance and estate upgrading industry
3. Well positioned to secure public sector projects as the exclusive paint applicator for Nippon Paint Singapore for HDB, JTC and National Parks projects
4. Offers complete solutions for the build environment, including green product offerings including renewable energy

Weaknesses

1. Market dependency – ISO is heavily reliant on the Singapore market, making it vulnerable to local economic fluctuations
2. Reliance on imported raw materials and foreign labour

Opportunities

1. Commercialization of BuildTech solutions provides new asset leasing revenue and geographical diversification opportunities
2. Growing demand for sustainability has increased focus on green building practices, creating more business opportunities for ISO’s renewable solutions segment

Threats

1. Regulatory changes regarding building regulations, environmental standards or manpower laws could impose additional costs or challenges
2. Economic Volatility – Economic downturns can impact construction budgets and project funding

Key Management

Anthony Koh Thong Huat, Executive Director & CEO

One of the co-founders of the group, Mr. Koh has over 33 years of experience in the building refurbishment and estate upgrading industry. He sets and implements the group’s expansion plans and overall corporate and strategic development, as well as oversees key functions, such as marketing and tendering strategies, budget and cost controls, and resource planning and allocation.

Anders Teoh Kok Ann, Chief Operating Officer (COO)

Mr. Teoh was appointed COO of ISOTeam in Jan 2021 and is responsible for the group’s daily operations. He has over two decades of experience in the construction industry, specifically in the R&R, and C&P segments. Mr. Teoh was the Executive Director and Co-Founder of specialist coatings and painting firm, Accom Pte Ltd (Accom), which he established in 2002 and headed until 2014.

Richard Chan Chung Khang, General Manager, Managing Director (ISOTeam Renewable Solutions), Director (ISOTeam BuildTech)

Mr. Chan joined the group in 2002 as a Project Supervisor and has been its General Manager since 2012. He is in charge of business expansion and diversification; planning and policy updates; and the management and supervision of the group’s corporate business development plans.

ESG in a Nutshell

ISO is committed to ESG practices through its green product offerings, adoption of solar energy at its headquarters, and comprehensive Scope 1 and 2 emissions disclosures. ISO has been awarded the Green and Gracious Builder Award by the Singapore Contractors Association Limited (SCAL) from 2014-2020 and is a member of the Singapore Green Building Council (SGBC).