ISOTeam – on the verge of a bullish break from a potential double bottom formation! (21 May 2019)
- Original Post from ERNEST LIM'S INVESTING BLOG

Previously, I have done a write-up (click HERE) on ISOTeam (“ISO”) after interviewing Anthony, CEO and Richard, GM on an exclusive basis in Dec 2018. I have bought in at that time and have taken profit in Jan 2019. Since Apr, I have been accumulating ISO, as its chart seems to portend a potential upside breakout after a lengthy potential double bottom formation. ISO closed at $0.230 on 21 May 2019. Let’s take a look at its investment merits and more importantly, its investment risks below.



Investment merits


a) Potential bullish break from a double bottom formation


Since 2017, ISO has experienced a protracted downturn in its share price. For the past five months, it has been consolidating between $0.191 – 0.225. At the time of doing this write-up, ISO seems to be on the verge of staging a bullish break after a lengthy potential 5-month double bottom formation. Neckline is around $0.225. Since 29 Apr 2019, except for two trading days, volume has been increasing and has been above its 30D average volume, as it approaches the resistance region $0.225. Indicators such as MACD, OBV and RSI are generally strengthening in line with the recent up-move. Amid positively placed directional indicators, ADX has been rising from 8.5 on 12 Feb 2019 to close 35.3 on 21 May 2019, indicative of a trend. Except for 200D SMA and 200D EMA, other short term EMAs (20D,50D,100D) are rising. A sustained upside breakout above $0.225 with volume expansion points to an eventual technical measured target $0.260. Conversely, a sustained breakdown from $0.191 with volume expansion points to an eventual technical measured target $0.157. Based on the current chart development, a bullish upside breakout scenario is more likely.


Near term supports: $0.215 / 0.205 / 0.195 / 0.191


Near term resistances: $0.225 / 0.240 / 0.250 / 0.275


Chart 1: ISO on the verge of breaking out from a lengthy potential double bottom formation




Source: InvestingNote 21 May 2019


b) C&O segment may have interesting development in the next few months


ISO has an interesting business segment called Eco-friendly solutions. In this segment, ISO has a cockroach and odour removal (“C&O”) segment which is undergoing tests with the relevant authorities for use in rubbish chutes. According to an article in Today dated Mar 2017 (click HERE), this is a targeted, odourless, environmentally friendly and more effective in reducing cockroaches. A beneficial side effect of this C&O solution is that it helps to reduce methane level in rubbish chutes (high levels of methane is one of the main causes of rubbish fire). Based on my personal guess, we are likely to hear more updates on this segment in the next few months.


c) Contract wins remain strong


Since Nov 2018, ISO has been winning contracts on a furious pace with a cumulative amount $94m awarded. It is noteworthy that FY18 and FY17 revenue amounted to $83.8m and $82.9m respectively. According to ISO’s 3QFY19 financial statements, management is optimistic about the overall sentiment and outlook for their business and they will continue to leverage on their strengths to win more contracts.


d) CY2020 may be interesting years


Calendar year 2020 (note financial year ends in June) may be an interesting year for ISO. Firstly, there may be potential disposal gains, as management plans to unlock value by selling two properties at Kaki Bukit and Serangoon. Such sales if materialise, may result in an approximate $3m gain. Secondly ISO has invested $5m into Sunseap via its Series C preference shares in May 2017. Should Sunseap IPO in 2019 – 2020, ISO may be able to get good returns from its investment. Thirdly, as a normal course of business, ISO is on the lookout for potential earnings accretive merger and acquisition opportunities. Fourthly, ISO’s SG bike seems to be the only company left with the full licence after OFO’s licence was cancelled by LTA on 22 Apr 2019. Separately, Mobike indicated in Mar 2019 that it has applied to surrender its bicycle-sharing licence. Thus, SG bike may be able to perform better in the next few years amid a reduction in competition.


e) Investment community seems to be finally taking note in ISO


ISO is slowly getting the attention of the investment community and media. For example, Straits Times has published two articles this month in relation to ISO, either directly or indirectly. On 4 May 2019, Sunseap was featured on Straits Times (click HERE) as the builder of one of the world’s first and largest sea water floating solar platform along the Straits of Johor, north of Woodlands Waterfront Park. For those who do not follow ISO, it is noteworthy that ISO is the installer for this project (see announcement HERE). On 19 May 2019, ISOTeam was featured in Straits Times with the tag line “ISOTeam building on its capabilities for greater growth” (click HERE).


Its turnaround is also catching the attention of RHB analyst who is the only rated broker covering ISO. Last week, RHB upgraded ISO to buy and increased his target price from $0.230 to $0.290 (click HERE). He also projects S$2.0m net profit in 4QFY19F. If this materialises, it will be ISO’s fourth consecutive quarter on quarter growth in net profit since 4QFY18!


f) Valuations seem attractive on a historical basis


Based on RHB’s report, if ISO can report FY19F net profit of around S$5.8m, at its last price of $0.230, it is trading at 11.3x FY19F PE. This compares favourably to its 5-year average PE of around 21.6x. In addition, on a P/BV ratio, ISO is trading around 1.0x P/BV vis-a-vis its 5-year average P/BV of around 1.9x. Thus, valuations look attractive on a historical basis.



Investment risks


Please take a look at my write-up on ISO (click HERE) for the risks. Some of the pertinent risks are


a) Chart reading is extremely subjective


Chart reading is subjective and is likely to be less accurate for small mid cap stocks, especially those with low volume.


b) Ultra-illiquid company


Ave 30D volume amounts to 157K shares only. This is not a liquid company where investors can enter or exit quickly. Amid the current volatile market conditions due to ongoing trade tensions, ISO may swing quite a bit if there are sudden sellers.


c)Results must catch up à which seems to be happening


Notwithstanding its contract wins of approximately $94m over the past six months which is already more than its FY18 revenue of $83.8m, earnings have to catch up. It is noteworthy that gross margins have dropped from 17.8% in FY18 to 14.0% in 1HFY19. This is a conscious effort by the management to reduce their margins for R&R contracts in order to get more volume of contracts. Other new projects which they are doing in CY2019 such as the $46.5m contract win from a leading integrated resort group and the floating solar platform from Sunseap should yield higher margins.


In view of the above, I have deliberately waited for ISO’s 3QFY19 results before completing this write-up. It is encouraging that ISO announced a S$1.7m net profit in its 3QFY19 results last week, amid strong recovery across all segments. It is noteworthy that ISO’s 9MFY19 gross margin has edged up to 14.4%, from 14.0% in 1HFY19. Furthermore, based on Table 1 below, ISO reported its second highest quarterly profit in 3QFY19 since 3QFY17! This is also the third consecutive quarter on quarter growth in net profit since 4QFY18. Thus, results may be finally catching up with contract wins.


Table 1: Second highest quarterly profit since 3QFY17



Source: Company; Ernest’s personal compilations


The above list of risks is not exhaustive


To keep my write-up concise and due to severe time constraints, the above list of risks is not exhaustive. Readers are advised to refer to the analyst reports HERE; ISO’s website HERE; ISO’s latest 3QFY19 financial results (click HERE); and my more detailed write-up (click HERE). You can also refer to ISO’s prospectus for more information on the risks etc. In addition, you can also contact ISO’s investor relation August Consulting if you have any queries regarding the company.



Conclusion


In conclusion, ISO continues to be interesting to me based on its chart (possible upside break from a potential bullish double bottom formation) and its business developments. Nevertheless, readers must be cognisant of (just to cite a few) illiquidity risk, risks relating to chart reading etc. Let’s see how it goes in the next few months.



Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/



P.S: I have mentioned to my clients to relook into ISO on 7 May 2019 when it was trading around $0.215. This write-up was delayed due to severe time constraints and as I’m waiting for ISO’s 3QFY19 results.



Disclaimer


Please refer to the disclaimerHERE


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Two stocks, ISOTeam and Sunpower with potential bullish stock charts (5 Nov 2019)
- Original Post from ERNEST LIM'S INVESTING BLOG

This week, two stocks, namely ISOTeam and Sunpower caught my attention with their potential bullish chart developments amid volume expansion.



1. ISOTeam


Chart looks positive with strengthening indicators and volume


Based on Chart 1 below, ISOTeam has been trading in a range $0.225 – 0.245 since 2 Aug 2019. ADX is starting to rise (closes at 18.7) amid positively placed DIs. In addition, indicators such as MACD, OBV and RSI are strengthening. MACD has done a bullish MACD line crossover and centerline crossover. A sustained breach above $0.245 with volume expansion is positive for the chart with an eventual technical target $0.265.


Near term supports: $0.235 / 0.225 / 0.220


Near term resistances: $0.245 / 0.255 / 0.275


Chart 1: Volume picks up amid strengthening indicators



Source: InvestingNote 5 Nov 2019



Other interesting aspects of ISOTeam


a) Average analyst target price $0.320; potential capital upside 33%


Based on Figure 1 below, ISOTeam is covered by three brokers with all buy calls. Target price ranges from $0.31 to $0.34. Average analyst target is around $0.320. This represents a potential capital upside of around 33%. Readers can refer to ISOTeam’s analyst reports HERE.


Figure 1: Average analyst target $0.320



Source: Bloomberg


b) Other factors


Personally, there are other noteworthy potential developments in the near term which I find it interesting.




  • Completion of M&A for Pure Group cum funding exercise for the acquistion. ISOTeam has extended the completion date to 30 Nov 2019. During the AGM held on 30 Oct 2019, I get the feeling that ISOTeam is committed to complete this earnings accretive acquisition, as they believe Pure Group is a synergistic fit with ISOTeam. In addition, Pure Group has a profit after tax targets of $3.0m for FY20 and $5.0m for FY21. To put this in perspective, ISOTeam’s FY19 net profit is $6.8m.






  • More contract wins. This month, Sunseap clinched a contract from HDB and the Singapore Economic Development Board to install more than 170,000 solar panels at 1,218 HDB blocks and 49 government sites. Based on a Businesstimes article dated 14 Jan 2019, it was reported that with ISOTeam’s $5m investment in Sunseap in 2017, there is a clause whereby Sunseap has to award 50% of the installation work to ISOTeam. According to a 17 Feb 2016 contract win announcement by ISOTeam, Sunseap awarded a $1.8m contract to ISOTeam to install solar panels on 33 HDB blocks. Conservatively speaking, if ISOTeam were to get a 1/3 share (instead of 50%) to install the solar panels on 400 HDB blocks, a back of the envelope calculation works out to be around $21.8m contract. Besides this, ISOTeam has shared that their outlook remains bright with many contracts open for bidding, especially as we near election.






  • A final dividend of around $0.0042 / share will be ex on 8 Nov 2019. This translates to approximately 1.8% dividend yield at the closing price $0.240.






  • Readers can refer to ISOTeam AGM’s takeaways HERE.




c) Risk factors


Some of the possible risk factors include but not limited to a broad market selloff; failure / long postponement of their acquisition of Pure Group; illiquidity which can lead to large price swings etc.



2. Sunpower – challenges its multi-month resistance $0.525


Bullish chart


Based on Chart 2 below, Sunpower has been trading in a multi month trading range $0.415 – 0.525 since 23 May 2019. ADX closes at 34.5, amid positively placed DI. All the exponential moving averages (“EMAs”) are rising, indicative of an uptrend, with golden cross formations. Volume has been picking up recently. RSI closes at 68.5 which is not overbought yet. For Sunpower, RSI can easily touch 84 before it turns lower. Past 10-year high RSI is at 92.0. A sustained break above $0.525 points to an eventual technical measured target of around $0.640. This is an eventual technical target which is unlikely to reach immediately.


Near term supports: $0.520 / 0.510 / 0.500


Near term resistances: $0.535 / 0.550 / 0.575


Chart 2: Chart looks bullish with rising ADX & EMAs and strengthening indicators



Source: InvestingNote 5 Nov 2019


Other interesting aspects of Sunpower


a) Analyst target price $0.830; potential capital upside 58% – 85%


UOB Kayhian is the only broker covering Sunpower with a target price of $0.830. Smartkarma has a target price of around $0.970. This represents a potential capital upside of around 58% – 85%. Readers can refer to the analyst reports HERE and Smartkarma’s report HERE.


b) Attractive valuations


Based on Bloomberg, Sunpower trades at 7.3x current PE vis-à-vis its 10-year average of 10.1x. I.e. This seems attractive if we compare against its 10-year average PE.


c) Sunpower’s positive outlook in FY19 and beyond


According to Sunpower’s 2QFY19 results, Sunpower shares the following developments outlined below which may bode well for FY19:




  • The continued ramp-up of existing GI projects, driven by: a) Continuous securing of new customers following the mandatory closure of small “dirty” boilers and relocation into industrial parks, and b) The organic growth of existing factories in industrial parks served by the Group’s GI plants. In this aspect, an article on Businesstimes dated 8 Jul 2019 corroborates this trend. It cites Hebei, China’s top steel making province has brought forward the closure of small coal fired industrial boilers by two months to the end of October 2019.




  • Yongxing Plant, acquired in Q3 2018, is expected to contribute for the full year, particularly as its profitability has been enhanced by post-acquisition upgrades.




  • Full year electricity sales by Changrun Project.




  • Lianshui Project is expected to make further progress by adding new customers in 2H 2019.




  • Start of trial production by Shantou Project Phase 1 in 2H 2019.




  • Contributions from the newly-acquired Suyuan Plant.




  • Potential accretive M&A of GI plants that can contribute immediately to the top and bottom-line.




  • Strong M&S order book




d)Risk factors


Some of the possible risk factors include but not limited to a broad market selloff; project execution risk; higher leverage from expansion; forex etc.



Conclusion


The above is written on the basis of technical chart. To my best effort, I have included in some updates for ISOTeam and Sunpower so as to give you some of their near term potential developments. Readers, as usual, please do your own due diligence and exercise your independent judgement.


P.S: I have already notified my clients to take note of ISOTeam and Sunpower respectively. I am vested in both for trading purposes only.



Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/



Disclaimer


Please refer to the disclaimerHERE


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ISOTeam trades near 4 year low despite record order books and bright outlook (10 Jan 19)
- Original Post from ERNEST LIM'S INVESTING BLOG

ISOTeam (“ISO”) caught my attention. Despite sitting on a record order book, ISO has tumbled approximately 44% from an intra-day high of $0.385 on 10 Apr 2018 to close near a four year low at around $0.215 on 10 Jan 2019. The share price decline was attributable in part to its 4QFY18 surprise loss announced in Aug 2018 (financial year ends in Jun). Nevertheless, my gut feel is that 4QFY18 should mark the trough in earnings and results should improve on a quarter on quarter basis in the next few quarters.


As this company is a potential turnaround play, I have arranged a 1-1 meeting with Mr Anthony Koh, Executive Director and Chief Executive Officer and Mr Richard Chan, General Manager (collectively, “Management”) last month. First, a description of ISO…



Description of ISO


ISO has grown from a company doing repairs and redecoration (“R&R”) & addition and alteration (“A&A”) projects in 2014 (when I first met them) to a multi-disciplinary company which provides complete solutions to the built environment. See Figure 1 below for its business segments.


Fig 1: ISO complete solutions provider



Source: Company



Key takeaways from the meet-up


1.4QFY18 loss was due to several factors, some of which are unlikely to be repeated


ISO reported a 4QFY18 net loss of S$2.0m in Aug 2018. Overall, FY18 net profit dropped 71% from S$6.4m in FY17 to S$1.9m in FY18. This drop was mainly attributable to the following factors, some of which are likely to be one off:


a) Resistant to change in bidding strategy for R&R projects resulting in less projects being awarded;


In FY18, there were less R&R projects put up by the town councils for public tender last year with more L2-grade jobs in the $1-2m range, which is a highly competitive space with many smaller players competing on prices. Amid the heightened competition, ISO has initially been resistant in changing its bidding strategy for R&R projects so as to maintain its gross margins for R&R projects to be above 20%. However, with the loss incurred in 4QFY18 (Apr – Jun), management has decided to change their bidding strategy by lowering their gross margin requirement by a few percentage points. Nevertheless, they believe that such change is necessary and beneficial for the group as a small sacrifice in margins is likely to bring about a significant increase in volume of R&R projects secured. This change in strategy is apparently successful as ISO announced on 19 Nov 2018 that they have clinched seven R&R projects worth S$10.8m. On 9 Jan 2019, ISO announced a further three R&R contract wins amounting to S$9.8m.


b) Start up investments in 1st HIP project;


ISO has incurred some start-up costs for its 1st HIP project such as buying 80 sets of temporary toilets (costs $5K each toilet), construction equipment, container office, platform etc. Some of these are one-time investments which they can be subsequently used for other projects. Furthermore, with the experience of its 1st HIP project, it is likely that they may get better margins for its subsequent HIP projects;


c) Some projects previously incurred losses but have either broken even or stabilised;


Overseas projects in Myanmar and Malaysia have incurred some losses in FY18. ISO has since reduced the headcount and has altered its strategies. For Myanmar, ISO is working with Singapore developers who want to develop projects in Myanmar. With Singapore developers, it is easier to do business and payment collection is easier too. For Malaysia, ISO has also significantly reduced its headcount. Together with its joint venture partner, they plan to change strategy to develop boutique project (i.e. develop a small piece of land with 50-80 units and sell à its partner’s forte) or / and manage foreign worker dormitory (ISO’s forte). As of now, both Malaysia and Myanmar businesses have stabilised.


ISO’s SG bike is one of the three bike companies (the other two companies are Chinese firms Mobike and Ofo to be awarded a full license by LTA. ISO has seen encouraging signs from SG bike. In fact, it has broken even in Oct 2018. Together with its partners, ISO intends to roll out family bikes in 1Q2019 along the parks to capture another segment of the market. In addition, SG bike may perform better in 2019 as Ofo seems to be having problems with cash flows, customer refunds etc. Furthermore, GrabCycle, one of the three companies to be awarded a sandbox licence, has decided to give up its sandbox licence.


In short, although it is unfortunate that ISO posted a 4QFY18 loss in Aug 2018, management views it as a “timely wake-up call” to all ISO workers to do their part to reduce cost, while not affecting quality. In this aspect, management is confident that all of their interests are in line with ISO’s shareholders to reduce cost, improve earnings while not affecting work quality.


2.Record order books – May get stronger…


With reference to its annual report (see Chart 1 below), its order book size is usually on average S$93.6m. However, it has recently been winning contracts. In the short span of less than two months, ISO has announced S$72m worth of contracts from 19 Nov 2018 through 9 Jan 2019! As of 9 Jan 2019, ISO’s order books have reached S$143m, the highest since the Group’s inception more than twenty years ago. This is approximately 1.7x of its FY18 revenue.


Chart 1: ISO’s order book trend



Source: Company’s annual report 2018


Management is positive that the order books can be maintained, or may even increase due to the following trends / developments:


a) Bright HIP project outlook


ISO has participated in the bidding for 2 HIP projects, one of which is known and announced on 2 Jan 2019. On 2 Jan 2019, ISO announced that it won its 2nd HIP project worth S$26.3m (its first HIP project clinched on Jan 2017 was around S$17.5m). My understanding is that the other HIP contract (in the bidding process) encompass three to four precincts, hence it is reasonable to assume that the contract size may be larger. However, there is no certainty that they may get the other HIP contract.


Besides the size of HIP project being larger, the number of HIP projects is likely to increase significantly due to two new developments. Firstly, HIP I has been expanded to include HDB blocks that had been built prior to 1997. Management believes this will open up opportunities for another 230,000 flats, equivalent to approximately 30 HIP projects a year! Secondly, the introduction of HIP II for flats which are 60-70 years old will open up another large pie for them to tender in the long term. As the flats will be older then, there may be more areas to upgrade which may naturally result in the contracts to be larger.


b) Visible increase in R&R projects


Management observes that there is a visible increase in R&R projects being up for tender. At a dialogue held as part of a welcome dinner at the inaugural Bloomberg New Economy Forum in Singapore in Nov 2016, our Prime Minister Mr Lee said it is always possible to bring the election forward (earlier than Jan 2021). Based on past observations, there seems to be an increase in R&R projects, or other projects up for tendering, ahead of the election. As ISO works with all 16 town councils in Singapore, this stands them in good stead when it comes to project bidding.


c) Sunseap spells opportunities for ISO


Based on an article on The Edge, Sunseap is building one of the world’s largest offshore floating photovoltaic (OFPV) systems to be located north of Woodlands Waterfront Park, along the Straits of Johor. Based on 9 Jan 2019 announcement, Sunseap has awarded the S$11.3m offshore floating solar project to ISO, comprising of the supply, design and installation of Offshore Grid-tied Solar Photovoltaic Systems. This is a milestone for both Singapore and ISO. The success of this project (to be completed by Sep 2019) is expected to open similar opportunities locally and around the region.


d) Largest single contract win $46.5m from IR group may herald other projects of such nature


In May 2018, ISO announced that it was awarded its single largest contract amounting to $46.5m from a leading integrated resort group with expected completion on Mar 2019. If they can successfully complete such a large contract on time, it may open doors to other contracts of such nature.


3.Cost savings of S$500K-S$1M on a steady state basis


ISO has just consolidated all its operations by shifting to Changi North in Apr 2018. Cost savings, stemming from venue rental, dormitory costs, reductions in operational and administrative expenses are likely to be seen in FY19F onwards with greater savings likely seen in FY2020 as ISO continues to streamline its operations. Cost savings may be around S$500K – S$1M on a steady state basis.


In addition, ISO is exploring the possibility of closing down, or streamlining certain business units because of duplication in capabilities. They are also exploring avenues to improve productivity through job redesign and retraining, as well as investing in talent by upgrading the skills of workers who have performed well.


4.Possibility of disposal gains


Based on its annual report 2018, management plans to unlock value by selling two properties at Kaki Bukit and Serangoon. Such sales if materialise, may result in an approximate S$3m gain.


5.Recurring income from energy-saving solutions


ISO announced on 25 Sep 2018 that it has entered into a collaboration agreement with Thai company Centerlise, to exclusively distribute and install Centerlise’s air centre hardware and equipment as well as its software systems locally. Based on ISO’s press release, Centerlise’s advanced algorithm cloud-based software automatically fine tunes air conditioning and water systems resulting in up to 30% in utility savings while maintaining optimum performance. Its application is compatible with any building with central air conditioning or chiller plants. Management believes that energy-saving solutions are highly relevant in this time and age amid climate change, and they are already seeing some encouraging response from potential customers.


ISO is not the only one interested in this segment. Based on a Bloomberg article dated 13 Dec 2018, KKR is putting in as much as S$45M in Barghest Building Performance (BBP), a Singapore provider of energy-saving solutions. (Management cites BBP as one of its direct competitors in energy-saving space) Going forward, this field is likely one of the areas where global private equity firms such as KKR, TPG and Bain Capital LP may focus on for their impact investing strategies. (Impact investing, in simple terms, is investing with the aim of achieving both financial return and social benefit)


6.Sunseap – potential IPO in 2019?


ISO has invested S$5 million into Sunseap via its Series C preference shares in May 2017. Based on an article published in South China Morning Post on 9 Aug 2017, Sunseap has plans to do an IPO as early as 2018. Should Sunseap IPO in 2019, ISO may be able to get good returns from its investment.



Valuations seem undemanding


In view of its bright industry prospects and potential new revenue streams, valuations seem undemanding for ISO based on Price to Book (“P/BV”). Based on Figure 2 below, ISO is trading at 1.0x P/BV vis-a-vis its 5-year average P/BV of around 1.9x. My personal view is that PE may not be such an accurate representation as 4QFY18 registered a shocking loss which resulted in FY18 net profit to be extremely low.


Fig 2: ISO 5-year valuations



Source: Bloomberg 10 Jan 2019



Chart


With reference to Chart 2 below, ISO is trading near 2014 lows. Chart is bearish with the down sloping exponential moving averages. However, indicators such as RSI, MACD and MFI are exhibiting bullish divergences. ADX closes at 16.9 amid positively placed directional indicators, indicative of a sideways trading pattern. My guess is even though chart is bearish, it may not drop too much given the low ADX and bullish divergences from the indicators. However, as ISO is extremely illiquid, it is extremely tricky to have an accurate picture. Thus, I will like to emphasise the above chart analysis is just a rough guide only.


Near term supports: $0.205 / 0.195 / 0.180 / 0.172


Near term resistances: $0.220 – 0.225 / 0.240 – 0.250 / 0.275


Chart 2: ISO at a 4-year low price



Source: InvestingNote 10 Jan 2019



Risks


As usual, there are many risks involved, especially in small caps. In my opinion, some obvious risks are execution risk, illiquidity risk and time horizon.


1.Execution risk


Execution is key to bring about the desired effects, ranging from project delivery, execution in new business segments, success in streamlining operations and reducing cost etc. Any serious hiccups in either of these areas may have an adverse effect on the company.


2.Illiquidity risk


Based on its latest annual report 2018, the top 20 shareholders have about 82.8% of ISO’s outstanding shares. Ave 30D volume amounted to around 49,000 shares only. This is not a liquid company where investors can enter or exit quickly. Against the backdrop of our volatile market, ISO may swing quite a bit if there are sudden sellers or buyers.


3.Time horizon


In my opinion, even if 4QFY18 marks the trough in operating performance, it may take some time for ISO (probably a couple of quarters) to generate good results on a year on year comparison. Nevertheless, my guess is that there is likely sequential (i.e. quarter on quarter) improvement in results, barring seasonal effects like Chinese New Year.


4.Valuations may be high if PE is used


With reference to Fig 2 above, using Bloomberg’s data, ISO is trading at 32.1x PE. However, it depends on which valuation measure one uses. My personal view (I may be wrong) is that PE may not be such an accurate representation as 4QFY18 registered a shocking loss which resulted in FY18 net profit to be extremely low.


The above list of risks is not exhaustive


To keep my write-up concise, the above list of risks is not exhaustive. Readers are advised to refer to the analyst reports HERE and ISO’s website HERE. You can also refer to ISO’s prospectus for more information on the risks etc. In addition, you can also contact ISO’s investor relation August Consulting if you have any queries regarding the company.



Conclusion


My personal view is that amid its strong order books, bright outlook for its business segments especially HIP, R&R projects, collaboration with Sunseap and Centerlise, it is likely to be a turnaround play in FY19F with more evidence of improvement likely to be seen in 2HFY19F. Nevertheless, readers have to be cognisant of (just to cite a few) illiquidity risk, execution risk etc.


P.S: I am vested in ISO and have informed my clients in Dec when ISO is trading around $0.195.


Readers who wish to be notified of my write-ups and / or informative emails, can consider signing up at http://ernest15percent.com. However, this reader’s mailing list has a one or two-day lag time as I will (naturally) send information (more information, more emails with more details) to my clients first. For readers who wish to enquire on being my client, they can consider leaving their contacts here http://ernest15percent.com/index.php/about-me/



Disclaimer


Please refer to the disclaimerHERE


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ISOTeam on the verge of a potential bullish chart breakout (9 Jan 2017)
- Original Post from ERNEST LIM'S INVESTING BLOG

$ISOTeam(5WF) recently caught my attention with a surge in price, accompanied with volume.
Based on Chart 1 below, ISOTeam has been trading in a tight range of $0.375 – 0.405 since 30 Aug 2016. ISOTeam closed unchanged at $0.395 on 9 Jan 2017. All the exponential moving averages (“EMAs”) are turning higher with 20D EMA on the verge of forming a golden cross with 50D EMA. Amid positive placed DIs, ADX has turned higher from 17 on 27 Dec 2016 to 30 on 9 Jan 2017, indicative of a trend. OBV has strengthened, together with other indicators such as RSI and MACD. RSI closed at 61 on 9 Jan 2017. It is noteworthy that RSI has touched around 86 in July and August 2016 before it declined. A sustained break above $0.405 with volume points to an eventual measured technical target of around $0.435. Conversely a sustained break below $0.375 with volume points to an eventual measured technical target of around $0.345. As the trend continues to be up (unless proven otherwise), the odds of an upside breakout outweigh that of a downside breakdown.
Near term supports: $0.385 – 0.395 / 0.375 / 0.360
Near term resistances: $0.405 – 0.410 / 0.425 / 0.445
Chart 1: ISOTeam on the verge of a potential bullish chart breakout
 
Source: Chartnexus chart as of 9 Jan 2017
 
Average analysts’ target price is S$0.540
Based on Bloomberg, average analysts’ target price is S$0.540. Estimated dividend yield is around 2.5%. Based on my research, it is noteworthy that since Aug 2016, there has not been any updated analyst reports on ISOTeam. With today’s contract wins of S$23m (click HERE for the announcement), my guess is that there are likely to be some updated analyst reports, hopefully with higher target prices.
 
Risks
1. Stock has jumped 30% since 19 Jul 2016
As ISOTeam has jumped 30% in the past 5-6 months, it may be prone to profit taking.
2. Basis of this write-up stems from its technical outlook only
The above write-up is clearly based on its technical chart. For fundamentals, readers should refer to analyst reports and the company’s financial results and all related company announcements. I have copied some links here for your reference:
a) UOBKH: FY16 More SolarNova contract wins to come [25 Aug 2016] (click HERE);
b) RHB: First Myanmar and fuel cell Installation contracts [8 Aug 2016] (click HERE);
c) DBS: Sprucing up HDB estates [15 Jul 2015] (click HERE)
P.S: It is apparent that the write-ups on ISOTeam above are pretty dated, hence with today’s contract wins, my guess is that there may be some updated analyst reports soon, hopefully with higher target prices.
3. Illiquidity
Although ISOTeam’s liquidity has improved substantially since my first write-up, its average 30D and 100D volume amount to 507K and 738K shares respectively. Thus, it is still not a liquid stock.
 
Conclusion – Chart looks good
In a nutshell, this write-up focuses more on ISOTeam’s chart setup. ISOTeam seems to be on the verge of a potential bullish chart breakout. A sustained break above / below $0.405 / $0.375 points to an eventual measured technical target $0.435 / $0.345 respectively. The odds of it staging an upside breakout outweigh that of a downside breakdown.
 
Disclaimer
Please refer to the disclaimer HERE

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