Not everyone may be familiar with Catalist-listed ISOTeam, but the projects the company has been involved in are likely more recognisable: Marquee Nightclub at Marina Bay Sands Minion Land and the casino at Universal Studios Singapore within Resorts World Sentosa Sunseap Group&rsquo s floating solar farm in the Straits of Johor the Bird Paradise at Mandai and hawker centres such as Tiong Bahru Market and Golden Mile Food Centre, to name just a few.

Since day one, ISOTeam has sought to differentiate itself from its competitors by being &ldquo cheaper, faster and better&rdquo and &ldquo delivering quality, safety and speed in our work,&rdquo says Koh in an interview with  The Edge Singapore.  &ldquo Now, we do this more efficiently and sustainably as we have grown a lot bigger.&rdquo
For instance, the company has embarked on digitalisation initiatives, such as using drones, which it first used for building faç ade inspections in 2021. It is now in the &ldquo late stages&rdquo of figuring out how to use drones to do painting as well.

These drones, developed with ISOTeam&rsquo s partners Acclivis Technologies and Solutions and Nippon Paint in 2022, are in the live testing phase. According to ISOTeam&rsquo s press release dated July 2, 2024, on the establishment of its subsidiary, ISOTeam BuildTech, the company says the faç ade washing drone was a &ldquo precursor&rdquo to the painting drone that it intended to commercialise by the end of 2024.

The company intends to launch 20 sets at a build-to-order (BTO) HDB site this year, pending approval from HDB, Koh shares. If the launch is successful, the company intends to multiply its fleet. Koh says that the company now hopes to commercialise the painting drone by the end of this year.

Creating a buzz
Drones were first proposed during Covid-19 when the entire industry was badly hit by a labour shortage and faced project completion delays. ISOTeam eventually managed to fulfil the contracts, but Koh realised there was a need to review how the company functions.

&ldquo What became clear during this period was that relying on foreign labour was unsustainable,&rdquo says Koh. As he was mulling over this challenge, an unnamed partner came forward to offer the use of its drones for faç ade inspection. &ldquo They wanted to break into the town council market and asked if we were keen to collaborate because we had the connections.&rdquo

After the partners completed a demo for Tampines Town Council in 2021, drones have been used for faç ade inspection.

Koh would not disclose the exact costs of deploying the drones other than a &ldquo fair bit&rdquo of money has been spent on R& D, but the drones have also helped reduce overall costs.

Under revised regulations, companies can hire five foreign workers for each local they already employ. The previous ratio was seven to one.

Accommodation costs for foreign workers have also shot up. Pre-pandemic dormitory beds each cost between $360 and $380 per month. They are now $650. ISOTeam has managed to secure its own dormitory licence to accommodate around 20% of its labour, which has helped save costs.

Beyond drones, ISOTeam intends to save manpower further by deploying two robots to do painting work around the clock &mdash even in the dark. Each robot, which costs around $120,000, can replace six to eight painters, costing about $150 per day each and is limited to working 44 hours a week. The government will co-fund up to 70% of the costs for the robots under the BCA Productivity Innovation Project (PIP) incentive scheme, while the drone will be subsidised by 30%.

ISOTeam is also looking at using artificial intelligence (AI) and robotics to help eliminate inefficiencies. &ldquo Not only can machines do more demanding tasks with greater precision and safety, but when integrated with AI systems, they can also collect real-time data for analysis, leading to more informed decision-making. This frees the human workforce to take on more complicated tasks,&rdquo said Koh last July when the company announced the move.

Going green
ISOTeam also has a strong focus on green solutions. For years, it has been recommending green products to its customers and is an advocate of eco-retrofitting. &ldquo It&rsquo s in our DNA,&rdquo claims Koh.

Notably, ISOTeam was the first to use heat-reflective or external wall cool paints. These paints cost more than conventional paint but can help reduce ambient temperatures by up to two degrees Celsius. From the 39 blocks of flats at Tampines that used such paints, the use will be extended to all town councils over the coming five years, said senior minister for national development Tan Kiat How in February.

Koh notes that although the heat-reflective paint is more expensive, it will have no material effect on ISOTeam&rsquo s bottom line. In addition to government funding, Nippon Paint, the supplier, is a minority investor in ISOTeam and has given a &ldquo good deal&rdquo .

Koh sees ISOTeam&rsquo s focus on going green as a way of giving back to the heartlands and the community where the company started. &ldquo As a contractor, we probably spoil the landscape. By promoting green initiatives, we see beauty [in our work], and the clients like us a lot.&rdquo

He adds that embarking on green initiatives also helps the company to save money. For instance, contractors traditionally hack off the plaster to redo walk paths and put on a new path. However, ISOTeam has a solution that puts a new layer over the path, which saves the client money and time. At the same time, noise pollution is also reduced.

Election play and building boom
Today, market watchers see the company as a beneficiary of the construction boom. The government projects construction demand of $47 billion to $53 billion this year&mdash a big jump from the 2020 pandemic year&rsquo s $21.3 billion.

The company&rsquo s most recent earnings indicate that things are looking up. On Feb 11, ISOTeam announced earnings of $1.9 million for the 1HFY2025 ended Dec 31, 2024, 36.5% higher y-o-y. Revenue also rose by 4.2% y-o-y to $65.4 million. &ldquo The outlook for ISOTeam remains strong as momentum in the building maintenance and estate upgrading industry continues to grow,&rdquo said Koh in ISOTeam&rsquo s Feb 24 statement.

ISOTeam has another positive attribute, according to Maybank Securities&rsquo Jarick Seet. In his initiation report on Feb 12, he calls ISOTeam an &ldquo election play.&rdquo Anecdotally, a fresh coat of paint helps sweeten the ground somewhat ahead of the polls, which must be called by November.

More critically, ISOTeam&rsquo s drone painting capabilities will be a &ldquo game changer&rdquo . Seet expects the company&rsquo s current FY2025 to be an inflection point for its profitability, with more painting jobs to be carried out using drones. &ldquo This should enable it to leapfrog competitors with 30%&ndash 40% lower costs, aligning with the government&rsquo s push to reduce manpower. We expect high growth ahead,&rdquo says Seet, who has rated this stock &ldquo buy&rdquo and a target price of 9 cents, based on a blended 8 times FY2025 and FY2026 earnings.

In a non-rated report dated Jan 9, CGS International&rsquo s Natalie Ong and Lim Siew Khee note that ISOTeam&rsquo s new BuildTech solutions arm could also increase its revenue capabilities. Also, its business is &ldquo highly recurring&rdquo , with various government moves to upgrade or renew housing estates.

SAC Capital&rsquo s Daniel Ng and Matthias Chan, in their Feb 14 report, also note ISOTeam&rsquo s &ldquo strong record&rdquo in government-backed projects. With an order book of $188.7 million as of Dec 31, 2024, ISOTeam secured revenue visibility until FY2029. &ldquo Additionally, ISOTeam&rsquo s push into AI-driven automation for faç ade maintenance and painting is anticipated to improve margins and operational efficiency,&rdquo they add. SAC has a &ldquo buy&rdquo call and a target price of 9.1 cents.

To Seet&rsquo s point about being an election beneficiary, Koh notes that historically, HDB and the town councils tend to call for more and bigger tenders whenever a general election is approaching.

This usually happens six months before and after the general election, he adds. &ldquo A bigger market share will give us higher margins too, as we can be more selective in tendering and [enjoy] economies of scale,&rdquo says Koh.

Even though the general election will be a &ldquo big help,&rdquo Koh is quick to note that ISOTeam&rsquo s sector is a &ldquo pretty stable&rdquo one. For instance, buildings will require repainting jobs every five to seven years and upgrading work every 10 to 12 years.

Maintaining a payout ratio
As a sign of better confidence in its earnings prospects, ISOTeam said on Feb 24 that it intends to recommend and distribute dividends equivalent to 30% of its consolidated net profit after tax. &ldquo This update in its dividend policy reflects ISOTeam&rsquo s confidence in its business outlook, supported by a robust order book,&rdquo the company adds.

Koh also tells  The Edge Singapore  he is &ldquo very confident&rdquo that the company can maintain this payout. After all, he points out that 80% of ISOTeam&rsquo s contracts are from the government, that the government will never fail to issue new contracts, and that they are good paymasters.