ISF Group Bhd - Continued DC Earnings Delivery
Mon, 21-Sep-2026 07:30 am
by Research Team • Apex Research

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ISF (0390)

Target Price (RM)

1.03

Recommendation

Buy

ISF's outstanding order book of approximately RM150m continues to provide solid revenue visibility, while its tender pipeline has expanded to a record RM500m, with around 60% linked to DC projects.

We keep our FY26F/FY27F/FY28F earnings forecasts unchanged at RM34.9m/RM42.5m/RM48.8m respectively, reflecting sustained earnings visibility from ISF's expanding data centre (DC) exposure.

Maintain BUY with a higher target price of RM1.03 (previously RM0.92), based on a higher target P/E of 24.2x applied to our unchanged FY27F EPS of 4.3 sen.

 

Investment Thesis. Since our previous update, ISF's share price has appreciated from RM0.73 to RM0.86, closing in on our previous target price of RM0.92. We believe increasing confidence in ISF's earnings delivery, alongside its continued positioning ahead of Malaysia's DC stage 2 thematic, warrants a further re-rating of our target multiple. Accordingly, we raise our target price to RM1.03 from RM0.92, while keeping our earnings forecasts unchanged.

Our continued constructive view is supported by ISF's resilient operating momentum, with margins holding steady at c.28% amid a growing contribution from high-margin DC projects. ISF's tender pipeline remains at a record c.RM500m (c.60% DC-linked), with DC project gross margins of around 50%. We continue to expect FY27F earnings growth to be driven by higher-margin DC contract wins, while FY28F should benefit from an increasing contribution from large-scale water and sewer infrastructure projects, including non-revenue water (NRW) initiatives.

Outlook. ISF's 2026 year-to-date contract wins stand at RM47.0m, comprising four residential sub-contracts and two DC-related awards, including the RM14.5m hyperscale DC sewerage package. The Group's earnings visibility remains underpinned by an order book of c.RM150m, equivalent to a book-to-bill ratio of c.1.5x FY25 revenue, with DC scopes now accounting for c.25% of the total, up from a much smaller base previously. Of greater significance is ISF's tender book, which has swelled to an all-time high of c.RM500m, c.60% (or c.RM300m) of which is DClinked. Applying a 35% conversion rate to this DC-related tender value alone points to c.RM105m of potential contract wins in 2H26F, this would materially lift DC's share of the order book and support the flow-through of higher-margin work into FY27F and FY28F earnings.

Earnings Revision. We maintain our FY26F/FY27F/FY28F core net profit forecasts of RM34.9m/RM42.5m/RM48.8m respectively.

Valuation & Recommendation. We maintain our BUY recommendation on ISF with a higher TP of RM1.03 (previously RM0.92), based on an increased 24.2x PE applied to a FY27F EPS of 4.3 sen, along with a three-star ESG rating. We raise our target P/E to 24.2x (from 21.5x), based on the average +1.0 standard deviation of the KL Construction Index Forward P/E, to reflect increased confidence in ISF's earnings delivery, alongside the Group's continued positioning ahead of Malaysia's DC stage 2 fit-out cycle. We move to a +1.0 standard deviation basis (from +0.5 previously) as we believe ISF's re-rating case has strengthened on more than one front: its earnings forecasts have now held firm through several consecutive updates without a single downward revision, its net cash balance sheet remains structurally superior to the broader construction index constituents that anchor this benchmark, and its position as the only listed pure-play on Malaysia's DC piping and sewerage build-out gives it a scarcity premium that a +0.5 standard deviation multiple no longer fully reflects.

Risks. Rising material costs, labour shortages and slower-than-expected contract replenishment.

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