Advancer Global Limited - CIMB Research 2016-09-15: Integrated services provider

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ADVANCER GLOBAL LIMITED 43Q.SI

Advancer Global Limited - Integrated services provider

• Integrated services provider offering foreign domestic workers, cleaning services and security services for commercial, industrial, government and residences.
• Company aims to grow via M&As.
• Asset light and cash flow generative business.
• Targets 50% payout ratio.
• Based on Bloomberg consensus, ADGL is trading at 17x/13x FY16/17 P/E against EPS growth of -1%/31%. Dividend yields for FY16/17 are 2.9%/3.8%.

Background 

What it does 

• Advancer Global Limited (ADGL) is an established and diverse integrated services provider offering workforce solutions and services in Singapore through its Employment Services Business, Cleaning and Stewarding Business and Security Services Business. These three services are described below: 
  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, amongst others, corporations and organisations.
  2. Cleaning and Stewarding Business Provision of integrated cleaning and stewarding solutions and services to, amongst others, hospitals, hotels, commercial and residential properties, as well as pest control services; and 
  3. Security Services Business Provision of manpower for security solutions and services to, amongst others, commercial, industrial and residential properties, as well as security escort services.
• Given that the Cleaning and Stewarding Business and Security Services Business are integrated and complementary, ADGL is able to package these into a comprehensive Facilities Management Business.

History 

• ADGL’s history dates back to the early-1990s when Desmond Chin, Francis Chin and their sibling, commenced the Employment Services Business for the provision of FDWs under various brands including, amongst others, “NATION”.
• Nation Employment was incorporated in 1994 and is engaged in the sourcing and employment of FDWs to households, and the provision of in-house and customised skills training for FDWs.
• In 2005, ADGL ventured into the Cleaning & Stewarding Business. In 2009, the Chin Brothers and their sibling mutually agreed to part ways. The Chin Brothers continued to lead the expansion of the Cleaning and Stewarding Business and the Employment Services Business predominantly under the “NATION” brand.
• ADGL commenced its Security Services Business by acquiring KC Security and KH Security in 2011 and 2012, respectively.

Customers 

• ADGL’s customers comprise mainly individuals and corporate customers across its business segments. None of its customers accounted for 5.0% or more of its total revenue in each of FY13, FY14 and FY15. ADGL’s directors believe that its business and profitability are not materially dependent on any industrial, commercial or financial contract with any customer and will not be materially affected by the loss of any single customer.
• The Group 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 shops and entertainment venues.
• For FY15, ADGL’s customer retention rates for its Cleaning and Stewarding Business and Security Services Business were 80.4% and 91.6%, respectively.

Segmentals 

• Over FY13-15, the Employment Services business contribution to Group sales has decreased from 34% to 28.6%. The Cleaning and Stewarding Business contribution to Group sales has grown from 40.2% in FY13 to 44.8% in FY15.
• The Security Services Business contributed to 26.6% of FY15 sales.
• Gross profit contribution by segment has also changed with the Employment Services Business accounting for 49% of FY15 gross profit (63% in FY13) and the Cleaning and Stewarding Business accounting for 35.8% of FY15 gross profit (18.2% in FY13). The Security Services Business accounted for 15.2% of FY15 gross profit.
• Gross profit margins for the Employment Services Business and Security Services Business were 45.4% and 26.5%, respectively, in FY15. Over FY13- 15, gross profit margins for the Cleaning and Stewarding Business has decreased from 18.5% to 15.2%.

Financial track record 

• Over FY13-15, revenue has grown at a CAGR of 12% while net profit has grown at a CAGR of 30%. Net profit margin has also improved from 7.2% in FY13 to 9.8% in FY15.
• According to ADGL’s IPO prospectus, post IPO and as at 30 April 2016, the net cash position would be S$11.2m. Over FY13-15, ADGL has generated positive net cash from operations and ended each of these years with a net increase in cash.
• ADGL’s business is asset light. As at end FY15, property plant and equipment was just 4.7% of total assets. Cash was 38.7% of total assets while trade receivables were 57.7% of total assets.

Outlook 

• ADGL is positive on the prospects for its business. The positive factors mentioned by ADGL are: 
  1. Increasing need for FDWs (Foreign Domestic Workers) to provide caregiving support to families with elderly persons and children ADGL highlighted that the number of elderly persons aged 65 years and above is estimated to increase from 340,000 in 2011 to 900,000 in 2030. Families with children will increasingly rely on FDWs to assist with caregiving duties so that both parents can remain in the workforce. In 2011, of the resident households with at least one FDW, 71.0% were households where both spouses were working.
  2. Government policies are likely to be favourable to ADGL’s Employment Services Business ADGL believes that the concessionary FDW levy provides additional financial relief to Singaporean households with caregiving needs which is likely to drive demand for its Employment Services Business.
  3. Consolidation of players in the facilities management market ADGL’s directors believe that the implementation of the new licensing system by the National Environment Agency and the progressive wage model introduced by the Police Licensing & Regulatory Department will be prohibitive to smaller businesses. In addition, the manpower crunch in the facilities management industries will be further exacerbated as firms now need to free up their employees to attend training sessions.
  4. Increased supply in Singapore’s residential and commercial property market ADGL’s Directors believe that the increase in supply in the property sector will be accompanied by a growth in demand for all kinds of facilities services, and will potentially lead to a corresponding increase in demand for its Facilities Management Businesses.

Company’s strategy 

• Post-IPO, ADGL’s strategy is as follow: 
  1. Expand its Facilities Management Businesses ADGL intends to expand through acquisitions, joint ventures and/or strategic alliances of businesses in the provision of facilities management services, such as the provision of integrated security services, property management, specialised pest control services such as fumigation, building maintenance and landscaping. ADGL intends to focus on expanding the size of its team of cleaners and security officers to increase its deployment flexibility which will allow ADGL to further secure contracts for its Facilities Management Businesses.
  2. Expanding its Employment Services Business ADGL intends to explore expanding its Employment Services Business organically in Singapore or overseas through acquisitions, joint ventures and/or strategic alliances that are aligned with its longer-term interests, subject to market conditions and opportunities.
  3. Increasing branding and marketing activities to strengthen its market position ADGL intends to strengthen its market position by increasing awareness and recognition of its “NATION” brand across various marketing channels and consumer touch points.
• The Group intends to refurnish and renovate its existing sales branches from time to time to ensure that the design, service concept and ambience of all its “NATION” sales branches are consistent in reflecting its “NATION” brand.
• Post-IPO, ADGL announced on 1st August 2016 that Nation Employment Pte Ltd, a wholly-owned subsidiary of the company, had established a new sales branch at 149 Rochor Road #02-02, Fu Lu Shou Complex in Singapore.
• Post-IPO, ADGL also announced two acquisitions: 
  1. Acquisition of Ashtree International (13 Aug 16) Ashtree is a security training and technology consultancy firm, with specialisation in aviation security, sensor technology, SAFE CITY architecture design, blast mitigation, crisis management and emergency response operating in the aviation industry. Ashtree’s major clients include consortiums operating in the aviation industry. In the area of aviation security, Ashtree provides its International Civil Aviation Organisation expertise through its team of security managers for the management of airside, landside and airbase security.
  2. Acquisition of Newman & Goh Property Consultants Pte Ltd (9 Sep 16) Established in 1986, Newman & Goh Property Consultants Pte Ltd is mainly engaged in the provision of property consultancy, property and facilities management services for residential, commercial and industrial properties in Singapore. Other services include property valuation, investment sales, as well as property agency services.

Valuation 

• ADGL was listed on 11 Jul 2016 at an IPO price of S$0.22 on the Catalist Board through an offer of 43m new shares. In its IPO prospectus, ADGL stated that it intends to distribute up to 50% of its net profit as dividends in each of FY16-18.
• Based on Bloomberg consensus, ADGL is trading at 17x/13x FY16/17 P/E against EPS growth of -1%/31%. P/BV for FY16/17 are 4.7x/4.0x against ROEs of 44.7%/35.6%. 
• Dividend yields for FY16/17 are 2.9%/3.8%.

NOT RATED
Target Price: N/A

William TNG CFA CIMB Research | http://research.itradecimb.com/ 2016-09-15

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