Maybank Securities analyst Jarick Seet has initiated coverage on ISOTeam with a &ldquo buy&rdquo call and 9 cents target price, on the premise that the painting contractor&rsquo s drone-painting system is a &ldquo game-changer&rdquo that can help generate better margins and win more contracts.

ISOTeam is known as a major contractor hired to give public housing new coats of paint. 

According to Seet in his Feb 12 report, the company has cornered a market share of around 30%.

 

As of Sept 6, 2024, the company has built up an order book of $202.4 million. 

In the current FY2025, the company is seen to improve its profitability as it puts behind lower-margin contracts in FY2024.

&ldquo We believe FY2025 will be an inflection point for its profitability and the launch of its AI drone-painting solution on an HDB site in April and will be rolled out at more estates if successful,&rdquo says Seet.

Seet estimates ISOTeam to enjoy better margins of 30%  &mdash   up from 20%  &mdash   by deploying the drones. This could, in turn, help the company bid and win for more contracts. 

&ldquo With a general election in Singapore slated for this year, more government projects will likely come up for grabs, putting ISOTeam in a prime position to benefit,&rdquo says Seet.

ISOTeam also has a 30% dividend payout policy, translating to a 4.7% yield for FY2025. 

The analyst observes that the company&rsquo s key executives will also increase their respective stakes in the company by buying more shares so as to signal their optimism.

&ldquo Risks to our call include labour and raw material costs increase as well as execution issues on its drone project,&rdquo says Seet.

Swing factors noted by the analyst include improving margins and higher revenue from more project wins, drone technology advancement, the stock&rsquo s turnaround play and finally, ISOTeam as a potential beneficiary of the Singapore election in 2025. 

Conversely, downsides include regulatory changes on foreign labour quota and a competitive tender landscape. 

As at 3.20 pm, shares in ISOTeam are trading 0.1 cents lower, or 1.54% down, at 6.4 cents.