CGS International has turned more upbeat on ISF Group Bhd following its post-second quarter FY2026 briefing, citing stronger prospects for data centre-related contract wins in the second half of the year and potential expansion into higher-value, higher-margin work.
The research house reiterated its Add call on ISF and raised its target price to RM0.95 from RM0.80, as it rolled forward its valuation to end-2027 while maintaining a price-to-earnings multiple of 19 times on calendar year 2028 forecast earnings per share of 4.99 sen.
CGS said it came away from ISF’s Sept 2 briefing with greater clarity on the data centre tender landscape and increased confidence in the group’s ability to achieve its RM150 million contract-win target for FY2026.
ISF secured about RM60 million of new contracts in the first half, leaving it targeting approximately RM90 million of additional wins in 2H26, mainly from data centre projects.
There was also a “slight positive surprise” from smaller data centre contract wins during the second quarter and the addition of new data centre end-clients, CGS said.
The research house believes ISF has a fair chance of exceeding its RM150 million full-year target, particularly as the group anticipates a revival in higher-value data centre tenders and contract awards from the third quarter.
RM557 Million Tender Book Offers Growth Potential
ISF’s outstanding order book stood at RM157.4 million at end-June 2026, of which data centres represented 24%, or RM37.3 million.
Its tender pipeline was considerably larger at RM557 million, with data centre projects accounting for 62%, or RM342.3 million.
CGS expects momentum in data centre mechanical, electrical and plumbing (MEP) and piping-system awards to accelerate during the second half, in line with trends seen among other mechanical and electrical contractors serving Malaysia’s expanding data centre industry.
The group is also expanding its customer base to include new data centre turnkey contractors serving US-based hyperscalers.
CGS sees the development as supportive of ISF’s ability to secure larger-value scopes as it builds its presence in the sector.\
Johor Remains Central To Growth Story
The research house said ISF remains well positioned to benefit from Malaysia’s data centre build-out, particularly in Johor, where the company has a strong presence.
CGS views ISF as a direct proxy for accelerating demand for water and piping integration systems associated with the country’s data centre rollout.
It expects the next six to 12 months to remain favourable for small- and mid-cap M&E and MEP contractors as data centre projects increasingly move into the second-stage and fit-out phases.
Beyond data centres, potential expansion into new industrial areas in northern Malaysia and entry into the water infrastructure segment could provide additional growth avenues.
Net Cash Position, Potential Dividend
ISF remained in a strong financial position, recording net cash of RM62.3 million at end-2Q26, equivalent to 6.3 sen per share.
The amount represents about 8.5% of the company’s RM735 million market capitalisation.
CGS said ISF indicated that it may consider declaring dividends in the second half of 2026. The research house currently assumes a 30% net payout ratio for FY2026, translating into a dividend per share of 0.98 sen, or a total payout of RM9.8 million.
This would imply a dividend yield of about 1.3% at the prevailing share price.
CGS said it continues to favour ISF for its capital-efficient and asset-light business model, relatively high margins, net cash balance and high return on equity.
Potential re-rating catalysts include higher-value data centre contracts in Johor, stronger third-quarter results, expansion into industrial areas in northern Malaysia and maiden penetration into water infrastructure.
Key downside risks include margin compression, project delays and slower contract replenishment, the research house said.
