Advancer Global - DBS Research 2016-08-12: Small Mid Cap Exploration

Advancer Global - DBS Research 2016-08-12: Small Mid Cap Exploration ADVANCER GLOBAL LIMITED 43Q.SI 

Advancer Global (S$0.34, ADGL SP)

  • Advancer Global is in a defensive segment offering necessity services, including workforce solutions, cleaning & stewarding and security services. These services are needed in both good and bad times. 
  • Asset-light model and positive cashflow generation are its other plus points. 
  • Growth strategies include acquiring niche business and moving up the value chain to improve profitability. 
  • Earnings for FY16F are expected to be flat due to IPO expenses. 
  • We expect the group to make acquisitions this year. Thus, FY17F will be a better year with the full impact of the anticipated acquisition kicking in.

The Business

  • The group has three main business segments:-
    1. Employment Services Business
      Provision of one-stop shop services for the sourcing, employment and training of foreign domestic workers (FDWs) to households, as well as the sourcing and employment of foreign workers to, among others, corporations and organisations. Its FDW employment business is primarily carried out by Nation Employment, with seven outlets in Singapore.
    2. Cleaning & Stewarding Business
      Provision of integrated cleaning and stewarding solutions and services to, among others, hospitals, hotels, commercial and residential properties, as well as pest control services, under the brands “First Stewards” and “Master Clean”.
    3. Security Services Business
      Provision of manpower for security solutions and services to, among others, commercial, industrial and residential properties, as well as security escort services, under “KC Security” and “KH Security”.

High customer retention rates

  • For FY2015, customer retention rates for its Cleaning and Stewarding Business and Security Services Business were 80.4% and 91.6% respectively. 
  • Order book as at 2 June 2016 (excluding the Employment Services Business) stood at of S$43.1m.

Diversified customer mix

  • Advancer Global has more than 400 corporate customers in relation to its Facilities Management Businesses, ranging from hospitals, multinational corporations, shopping malls, hotels and resorts, management corporations of residential and commercial properties, food and beverage outlets and entertainment venues. 
  • The largest customer accounts for only about S$1m plus in revenue.

50% dividend payout ratio

  • The group has announced a dividend payout of at least 50% of net profit for each of FY2016, FY2017 and FY2018.

One-stop shop solution and service provider

  • Advancer Global’s Cleaning and Stewarding Business and its Security Services Business are integrated and complementary, which enable the group to position itself as an efficient one- stop shop solution and service provider.
  • Going forward, the group could further enhance this position to secure bigger projects and to increase market share and profit margins. It could move to integrated facilities management, and add more services to its existing ones, such as the provision of integrated security services, property management, specialised pest control services such as fumigation, building maintenance and landscaping, to increase and retain existing customers, and also to target new ones.

Scaling up Security business

  • The Security business accounted for 26.6% of FY15 revenue. Advancer Global intends to scale up this segment and targets to grow this segment by about 20% to achieve one-third contribution to group revenue. Plans in place include building on existing manpower base, and providing training to handle higher-value projects to move up the value chain and improve profitability.

Positive Outlook

Employment – 

  • With the ageing population, there is increasing need for FDWs to provide caregiving support. The number of elderly persons aged 65 years and above is estimated to increase from 340,000 in 2011 to 900,000 in 2030. 
  • Furthermore, the concessionary FDW levy provides additional financial relief to Singaporean households with caregiving needs, especially those with young children and elderly. 

Facility management services (Cleaning & Stewarding and Security services) - 

  • The implementation of new measures by the government, e.g. the progressive wage model will be prohibitive to smaller businesses. This will benefit integrated players like Advancer Global. 
  • Furthermore, the increased supply of Singapore’s residential and commercial property market will also create more jobs for the facility management industry.

Key Risks

Affected by the laws, regulations, policies and market forces 

  • Subject to laws, regulations and policies imposed by the government and regulatory authorities in Singapore and in the countries from which the foreign labour originates, which may influence the supply of foreign labour.

Exposed to cost overruns

  • The actual execution time and costs involved in the performance of service contracts may be adversely affected by many factors which may lead to delay in or failure of completion of work and/or cost overruns.

Lee Keng LING DBS Vickers | http://www.dbsvickers.com/ 2016-08-12
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