ISF venturing into NRW for next growth wave [WATCH]

KUALA LUMPUR: Less than a year after its debut on Bursa Malaysia, ISF Group Bhd is looking to further diversify its revenue base with recurring income sources from partnerships with states water authority to reduce non-revenue water (NRW).

While the company has built its recent growth momentum by riding the data centre boom across Malaysia, its management is cultivating its next major growth drive through cutting-edge technology partnerships to deliver comprehensive NRW solutions.

"ISF is looking at elevating our position to public infra, like projects from PAAB (Perbadanan Aset Air Bhd), and projects from state governments," said its group managing director Jeff Ai Boon Chen in an exclusive interview with Business Times.

To execute this vision, the company is finalising a strategic joint venture with a Hong Kong-listed subsidiary of a major Chinese water firm to introduce smart meters and AI-driven monitoring software to local state water authorities.

"So, instead of working conventionally, like we just purchase technology from them, we will be working as joint venture partners, in which each company will own a stake in this subsidiary. Because we are looking at the long term, rather than every time we need one-off technology," said Ai.

He added that in China, the water supply authority can control the flow of water in each house, through digital sensors and valves in the smart meters, to ensure commercial NRWs - customers not paying their water bills - are addressed there.

ISF's competitive edge lies in acting as the local executor and coordinator, filling the gap where foreign technology suppliers struggle with local deployment and state authorities lack full operational capability.

"So, the technology, the manufacturing and everything will be handled by them. So, there won't be any conflict of interest. So, that is why we work as partners... But, with this joint venture, ISF will act as a so-called party to coordinate everything.

"We execute the work, pipe replacement, everything we can do ourselves," said Ai.

ISF is already in negotiations with a state government in the northern peninsular to implement the NRW management system.

The company is currently funding a proof of concept (POC) to demonstrate the efficacy of this system, paving the way for long-term recurring revenue models, he said.

The commercial arrangements that ISF is looking at with the state's water authority is either through profit sharing or one-off project costs that come with operation and maintenance (O&M) contracts, said Ai.

"But it is a long-term thing that we are looking at because we need to have recurrent income rather than purely doing projects. What we are doing now is actually preparing for the next wave (to ride on).

"Hopefully, by maybe the third or fourth quarter of 2027, there will be concrete things. So, the next growth story will begin," he said.

Riding the data centre wave while maintaining strategic diversification

While NRW technology represents the future horizon, data centre (DC) projects serve as ISF's immediate revenue engine.

The company's involvement in the sector dates back nearly a decade, giving it an early-mover advantage over competitors.

Riding on the DC construction wave, ISF's net profits in the financial year ended Dec 31, 2025 (FY25) surged 163 per cent to RM25.34 million, compared with RM9.64 million in the preceding financial year.

In the first six months of the financial year ending Dec 31, 2026 (FY26), ISF reported net profits of RM12.5 million, on the back of RM57.6 million in revenue.

The six-month revenue was 58.4 per cent of FY25's total, and already exceeded FY24's revenue of RM54.67 million.

DC works have grown substantially as a share of overall revenue, but management remains steadfast in diversifying across multiple asset classes to protect the business against cyclical shifts.

"So, over the years, it has increased from maybe 10 to 15 percent to I think exceeding 50 percent revenue for FY25. So, we are still looking at revenue from DC jobs also exceeding 50 percent for FY26," said Ai.

However, DC plumbing and piping is only one of the capabilities that ISF could do.

The group is also involved in industrial and commercial assets piping contracts, as well as water distribution and sewerage.

"We consistently tell the public that we are a diversified plumbing contractor. So, every cycle is a good cycle for ISF because you know, we do everything. We are not telling you we can only do DC.

"We still maintain 15 per cent for residential, commercial, industrial and other stuff. So, maybe next year, when the market share of DCs eventually gets smaller, maybe slowly to 30 per cent, our other segments will slightly increase to between 30 and 40 per cent (of revenue)," said Ai.

Looking ahead, ISF anticipates a temporary stabilisation in DC tendering as the industry pivots to execution, opening up space for healthcare and medical infrastructure projects.

"I foresee there will be a bit of a slowdown of the DC standards starting from the first or second quarter of next year. Now is the awarding period, a lot of announcements. So, next year will be the so-called execution year."

"I am looking at next year, maybe we will shift more on the industrial and also on the hospitals, healthcare kind of things. At the end of next year, there will be quite a number of hospitals to be built," said AI.

Institutional Backing Through IPO

ISF's shift from a private entity to a publicly listed company was guided by a desire to install strong corporate governance and attract top professional talent rather than maintaining a strict family dynasty, said AI.

"So, in order for good talent to get into the business, of course, we need to be transparent. Since day one, we are not looking at turning ISF into a family legacy. I've never had the mindset that I'm going to pass ISF down to my children.

"Because my initial intention is very simple. I look at other companies, let's say Hilton. We don't even know who the boss is, but everything is operating smoothly," said Ai.

This institutional transparency brought by being a publicly-listed company has attracted major fund managers, collectively holding more than 20 per cent of ISF's share base.

Despite interest from existing institutional investors to increase their stakes, ISF is adequately capitalised with existing proceeds from its initial public offering (IPO) and internally generated cash to fund its robust tender pipeline.

"Currently, we still have some cash reserves from the IPO. So far, we are still okay with using our existing cash to support our growth," said Ai.

According to its 2025 annual report, institutional investors of ISF include Kumpulan Sentiasa Cemerlang Sdn Bhd, Urusharta Jamaah Sdn Bhd, Hong Leong Dana Makmur, KAF Tactical Fund and AIA Public Takaful Bhd.

However, none of the institutions are substantial shareholders of ISF.

ISF raised RM61.15 million from its IPO in January, with nearly two-third of the proceeds reserved for purchasing operational materials and paying subcontractors.

About 19 per cent is allocated to establish and expand operational facilities, including a new head office at its home base in Johor, and new regional offices in Selangor or Negri Sembilan, and Penang.

A portion of the capital raised is further allocated toward expanding its fleet of heavy machinery and recruiting additional personnel.

Funds from the IPO proceeds and its internally-generated cash are currently enough for its current tender book balance of approximately RM600 million, said Ai.

Historically, ISF managed to secure between 20 and 30 per cent of its tender book as orders.

"So, we are still looking at an annual replenishment of RM150 million per year for new wins," he said.

Defending Profit Margins

ISF commands strong profit margins by maintaining direct operational control, capturing economies of scale, and reducing dependency on third-party subcontractors. As of 6M FY26, ISF's gross margin stood at 30.89 per cent.

The group is looking at improving its gross margins over the next two years, said Ai.

"So, actually, why we are able to command good margins is because of the economy of scale. We are one of the largest plumbing contractors, so we are able to have a better command on the pricing with the suppliers.

"Secondly, we do a lot of things in-house," he said.

To tackle localised labour constraints particularly in Johor where labor competition with Singapore is intense, ISF utilises independent subcontractors strictly for supplemental labour while retaining full ownership of equipment and management.

ISF remains unthreatened by foreign entrants or Chinese investments, as those entities typically operate in closed, in-house ecosystems that fall outside its core target client base.

While the group has been registering strong profit growth, ISF has not declared a dividend, as it prioritises reinvesting earnings into expansions.

The group does not have a dividend policy at the moment.

"We do not have a formal policy on issuing dividends, because, as you can see, our growth is exponential. So, we need to conserve quite substantial cash with us to support our projects," said Ai.

As of Oct 15, ISF's share price appreciated more than 65 per cent to 80 sen apiece, valuing the group at RM795 million.