ISF Group Bhd - Riding the Data Centre Stream
Wed, 04-Mar-2026 07:47 am
by Tan Wai Wern • Apex Research

Counter

ISF (0390)

Target Price (RM)

0.55

Recommendation

Buy

  • ISF maintains a solid unbilled order book of c.RM125m as of February 2026, providing clear near-term earnings visibility. Revenue recognition is staggered, with RM85m expected in FY26, RM30m in FY27 and the balance in FY28.

  • ISF has established itself as a preferred contractor in the data centre segment and is targeting to generate c.50% of revenue in FY26 from these projects. The current tender pipeline is primarily concentrated in Johor (70%) and Central Malaysia (30%).

  • Management continues to prioritise profitability, targeting PAT margins of 25%. These margins are supported by the higher technical complexity and specification requirements of data centre projects, combined with variation orders which provide additional upside.

  • Maintain BUY recommendation with an unchanged TP of RM0.55, based on 18.7x P/E multiple applied to its FY26F EPS of 2.9 sen, along with a three-star ESG rating.

We left ISF’s briefing with the following key takeaways:

 

Robust Order Book Visibility. ISF maintains a solid unbilled order book of c.RM125m as of February 2026, providing clear near-term earnings visibility. Revenue recognition is staggered, with RM85m expected in FY26, RM30m in FY27 and the balance in FY28. To sustain growth momentum, management is targeting annual new contract wins of RM120m–150m, supported by an active tender pipeline of c.RM450m. Project award timing remains dependent on client schedules, with awards broadly split between the first and second halves of the year. Execution capacity has also been strengthened, with headcount expanded by 50% year-on-year to 300 employees, enabling the Group to comfortably manage multiple projects concurrently.

 

Strong Positioning in Data Centres. ISF has established itself as a preferred contractor in the data centre segment and is targeting to generate c.50% of revenue in FY26 from these projects. The current tender pipeline is primarily concentrated in Johor (70%) and Central Malaysia (30%), reflecting the geographic focus of ongoing capacity expansion. Entry barriers remain high due to stringent technical, engineering and inspection requirements, which favour seasoned contractors with an established track record. The Group is currently tracking around 10 potential data centre projects involving global hyperscalers and local contracting giants.

 

Sustainable Margin Profile. Management continues to prioritise profitability, targeting PAT margins of 25%. These margins are supported by the higher technical complexity and specification requirements of data centre projects, combined with variation orders which provide additional upside potential. Input cost volatility is viewed as manageable, with oil price movements having limited impact due to locally sourced materials, while the use of HDPE pipes with longer lifespans supports project durability. Supported by healthy cash flows and a strong balance sheet, the Group has indicated a dividend payout ratio of 30–50%.

 

Outlook. Looking ahead, ISF’s earnings outlook remains resilient, underpinned by a healthy order book and a sizeable tender pipeline that supports ongoing replenishment. With a disciplined bidding approach and an assumed win rate of 30%, the Group is well-positioned to capitalise on continued data centre investments in the Klang Valley and Johor. These projects typically offer shorter execution cycles and structurally higher margins than conventional residential works, supporting both earnings growth and margin sustainability over the medium term.

 

Earnings Revision. No change to earnings forecasts.

 

Valuation & Recommendation. We maintain our BUY recommendation on ISF with an unchanged TP of RM0.55, based on 18.7x FY26F P/E (EPS: 2.9 sen), along with a three-star ESG rating.

 

Risks. Project execution & operational risk, regulatory & compliance risk and industry cyclicality risk.

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