Advancer Global - SAC Capital 2021-08-31: Manpower Crunch The Biggest Bugbear


Advancer Global - Manpower Crunch The Biggest Bugbear

  • Advancer Global (SGX:43Q)'s 1H21 revenue of S$30.0m (+8.5% y-o-y) were below our estimates (42.0% of our FY21E forecasts).
    • Cleaning and building management services (+13%) and security services (+6%) enjoyed demand driven by virus preventive measures.
    • Placement of domestic helpers (-5%) was hurt by entry restrictions into Singapore. This segment now account for just 12% of revenue.
  • Bottomline slipped into a loss of S$0.9m.

Facing headwind.

  • The results reflect the industry-wide constraints that Advancer Global faces:
    1. Border controls and COVID-19 resurgence in some source countries resulted in a high degree of uncertainty in foreign manpower supply; and
    2. the cost of human capital has surged from higher cost to retain existing staff, the Progressive Wage Model that stipulates a minimum wage, 3% annual increase and bonus for cleaning, security and landscaping work, and training expenses for local workers to fill the slack.
  • Gross margin dipped 5.4ppt to 21.8%. Despite this, Advancer Global generated positive operating cash flow of S$3m, or S$0.012 per share.
  • While the demand for building management and security services remains firm, Advancer Global has turned cautious in tenders to ensure that it can meet the manpower requirements and sustain margins in the face of rising costs. Given this, we expect forward revenue growth to be subdued. Gradual border re-opening is likely to take place towards end 2021, but we see return to pre-pandemic order only from late 2022.

Building on its M&A strategy.

  • Advancer Global continues to pursue inorganic growth through mergers and acquisitions to deepen its industry and geographical reach. Since our last update, Advancer Global had completed three acquisitions. These deals include:
    1. Acquisition of 45% stake in e-commerce applications developer Eazable Pte. Ltd.
    2. Acquisition of 100% stake in property management and property valuation services provider HBA Group Property Consultants Pte. Ltd.
    3. Acquisition of remaining 24% in landscape-related servicers provider Country Cousins Pte. Ltd.
  • These 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. Advancer Global’s M&A effort also looks to incorporate the use of technology in its services.

Revise to HOLD with lower target price

Lam Wang Kwan SAC Capital Research | https://www.saccapital.com.sg/ 2021-08-31
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.128 DOWN 0.134