Advancer Global - SAC Capital 2021-03-22: FY20 Profit Held Up By Government Grant

ADVANCER GLOBAL LIMITED (SGX:43Q)

Advancer Global - FY20 Profit Held Up By Government Grant

COVID-19 dented Advancer Global's FY20 revenue by 20.5%.
Advancer Global's FY20 net profit of S$5.0 million (vs S$0.4 million in FY19) held up by government grant.
On M&A trail to deepen industry reach & footprint.

Advancer Global (SGX:43Q)'s FY20 revenue fell S$14.6 million or 20.5% to S$56.4 million in FY2020.
- The employment services business placed out fewer foreign domestic workers to households in Singapore as a result of worldwide travel controls which restricted their entry into Singapore. The Group closed 4 out of 6 branches.
- The building management business faced a drop in service income across residential, commercial properties, hotels and restaurants, while
- the security services business saw a marginal drop in service income from security projects at Changi airport, shipyard, schools and commercial properties due to COVID-19.

In line with the fall in revenue, cost of sales fell by S$10.4 million or 19.2% to S$43.5 million while gross profit decreased by S$4.2 million or 24.5% to S$12.9 million for the year mainly due to the decrease in gross profit from employment services business and building management business. Advancer Global’s overall gross margin decreased 1.2 percentage point from 24.0% to 22.8%.
Advancer Global's earnings, however, were held up by an increase in other operating income, which rose by S$8.6 million to S$10.0 million in FY2020. The rise was mainly contributed by an increase in government grant and credit scheme, including Wage Credit Scheme, Jobs Support Scheme and rental rebate from landlords as a result of property tax remission, amounting to S$9.3 million for FY2020 as compared to S$0.9 million from a year ago.
Overall, Advancer Global recorded net profit of S$5.0 million for the year as compared to S$0.4 million in FY2019.
Advancer Global declared a final one-tier dividend of 0.79 Singapore cent per share for FY2020. Together with the interim dividend of 0.59 Singapore cent per share, the aggregate full year dividend stood at 1.38 Singapore cents per share for FY2020.

In line with its strategy to grow inorganically through mergers and acquisitions and to penetrate new markets via joint ventures, Advancer Global had successfully completed three acquisitions since our last update. These deals include:
1. a 82% stake in SRE Global Pte. Ltd., a company which provide property management, valuation and consultancy services as well as property agency services in Asia;
2. a 15% stake in Zhe Jiang Zhi Wu Hui Yun Technology Co. Ltd., a China-incorporated company which sells and installs Smart Toilet System and Internet of Things products backed by its self-developed online platforms; and
3. A 100% stake in property management service provider PropNex Management Consultants Pte. Ltd..
All three investment were made in an effort to expand Advancer Global’s building management business and to create synergistic value with the Group‘s existing services.

We have maintained our Advancer Global's earnings estimates at S$0.4 million for both FY21E and FY22E, factoring in absence of government grant, and a gradual recovery in economic activities lifting demand for building management and security services, but slower pickup in employment services as the source countries are coping with lockdowns.
Due to high level of operating leverage in its business, higher order flows can potentially lift Advancer Global’s margins and earnings.
Through its recent acquisitions, Advancer Global has shown that it is on a constant lookout to acquire M&A targets to broaden its service offerings and extend into new markets.
With net cash of S$27.0m (56.6% of net assets), Advancer Global has sufficient war-chest to pursue acquisition targets and to continue its inorganic growth strategy.
See Advancer Global Share Price; Advancer Global Target Price; Advancer Global Analyst Reports; Advancer Global Dividend History; Advancer Global Announcements; Advancer Global Latest News.

Lam Wang Kwan SAC Capital Research | https://www.saccapital.com.sg/ 2021-03-22

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