We reiterate our NEUTRAL rating on ISOTeam (SGX:5WF) as we believe the stock has priced in its growth prospects. We continue to await better valuation and more consistent earnings performance before we turn positive on the stock.
1HFY26 earnings in line.
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Gross margin expanded 3.5ppts to 18.6%, mainly due to cost savings by moving workers away from outsourced third-party dormitories into its own Changi headquarters after converting one of its floors into a workers’ dormitory. While operating costs grew by 7% y-o-y, GPM expansion helped to lift EBIT margins from 5.4% to 8.4% (+3ppts).
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Awaiting signs of more certain revenue recognition before becoming more positive.
ISOTeam's 1HFY26 earnings made up ~42% of our FY26F bottomline. With a stronger project pace and revenue recognition expected by management for 2HFY26, we have left our earnings estimates unchanged.
As revenue has not tracked closely to our expectations, and earnings were in line, benefiting from cost savings measures, we await revenue recognition to be more certain before we turn positive on the stock.
Firm construction demand ahead
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