The Group is an established and diverse integrated services provider offering workforce solutions and services in Singapore through its three business segments of Employment Services Business, Cleaning and Stewarding Business and Security Services Business. The Group provides a range of solutions and services, from sourcing and training of foreign labour, to providing specialised solutions and services for facilities management services, in accordance with the requirements of its customers.
Source: IPO Prospectus
Source: Bloomberg, Phillip Securities Research (Singapore) (PSR)
COMPANY BACKGROUND AND HISTORY
a. Provide one-stop shop services for the sourcing, employment and training of foreign domestic workers (“FDWs”) to households
b. Sourcing and employment of foreign workers (“FWs”) to, amongst others, corporations and organisations
2. Cleaning and Stewarding Business
a. Provide integrated cleaning and stewarding solutions and services
b. Provide pest control services for the remediation and prevention infestations through wholly-owned subsidiary Unipest
3. Security Services Business
a. Provide manpower for security solutions and services to, amongst others, commercial, industrial and residential properties, as well as security escort services
Good Track Record
Awards and Accreditations evidencing quality solutions and services
Strong and dedicated management team and employees
Household brand, supporting its recurring income
Sole Singapore Player as a one-stop solutions and services provider
The Group’s unique multidisciplinary business model and structure has no direct competitors. However, it believes that its main competitors for each of its business segments, are:
Source: IPO Prospectus
Prospects and Opportunities
Increasing demand for FDWs – underpins growth in Employment Services Business
a) Ageing Singapore population increases the need for FDWs to provide caregiving support to families with elderly persons and children. 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.
The numbers of FDWs living in Singapore has been increasing steadily over the past five years. Demand for FDWs is estimated to increase from 231,500 in December to about 300,000 by 2030.
b) Favourable government policies e.g. concessions in relation to FDW levies for Singapore families caring for an elderly person or children below the age of 16, and potential increase in the source countries which FDWs can be recruited, could benefit the Employment Services Business by increasing both demand and supply.
Facilities Management Businesses to see a boost from the increased supply of Singapore’s residential and commercial property market
As at 31 March 2016, the URA sees the pipeline supply of
a) a total of c. 2,314k sqft of retail space to be completed for the remainder of 2016;
b) a total of c.27,996 units (including executive condominiums and private residential units) to be completed in the 2016.
Increase in supply in the property sector will raise the demand for all kinds of facilities services.
M&A opportunities amid consolidation of players in the facilities management market
Implementation of new licensing system by the National Environmental Agency and the progressive wage introduced by the Police Licensing and Regulatory Department would raise the bar for new entrants and existing market players. These also pose opportunities for the Group to expand by merging or acquiring smaller players that are squeezed out.
Management also shared that its economies of scale enables the Group to meet these rising expectations of service standards.
USE OF PROCEEDS
Management intends to expand into new complementary business that will create synergistic value with its Facilities Management Businesses, through organic and inorganic growth. These include venturing into services it has yet to be able to offer as well as expanding the size of its team of cleaners and security officers. Hence, management has earmarked bulk of its IPO proceeds for business operations expansion.
The Group also considers exploring opportunities to expand its Employment Services Business organically in Singapore or overseas.
Brand awareness is crucial for the Group in gaining market share for its Employment Services Business. Management intends to increase “NATION”’s branding and marketing activities through a wide range of media platforms, engaging celebrities to act as spokespersons, as well as refurbishing its existing sales branches.
The Chin Brothers (Mr Desmond Chin, Mr Gary Chin and Mr Francis Chin), and Mr Ong Eng Tiang) will collectively own 71.56% (from 100%) of enlarged share capital after IPO, and Mr Teo Sau Keong, will hold an aggregate of 3.61% of enlarged share capital after IPO. In demonstration of their commitment to the Group, they have agreed to a lock up period of 6 months for 100% of their interests and a further 6 months thereafter, for 50% of their interests, from the date of listing.
The other 24.83% consists of 10.68mn new shares which will be offered at S$0.22 each (7.68mn placement shares and 3mn public offer).
Key personnel risks. The Group depends on the contributions of its Directors and Senior Management, in particular, the Chin Brothers and Mr Ong Eng Tiang, who have been instrumental in spearheading the Group’s growth, corporate development and overall business strategies.
Requirement to obtain licenses, permits, approvals and/or certifications to ensure the continuity of its business and operations. Most of its licences, permits, approvals and/or certifications are renewable on a periodic basis. Renewal under unfavourable terms and conditions or failure to renew could results in failure or delays in providing solutions and services to its customers, hence adversely affecting the Group’s prospects, reputations and financial performance.
Changes to the existing rules and regulations could increase the risk of not able to obtain or renew its licences, permits, approvals and/or certifications. It may also require the Group to obtain additional licences, permits, approvals and/or certifications to continue its operations. Additional expenses may adversely impact its financial performance.
Supply of foreign labour affected by (i) both local or foreign laws, regulations and policies; and (ii) reliance on its sub-contractors. Subjected to these requirements, the Group may not be able to obtain sufficient supply of foreign labour to meet its business demand.
What do we think?
Established player in the field of integrated manpower solutions and services with favourable prospects. Its diversified portfolio and extensive scale enable it to offer clients complementary services at a better rate. Its quality service helps to build long-standing relationships with its customers which could translate into recurring incomes. The Group could leverage on its track record and strong brand recognition, to ride on the favourable trends in providing Employment Service Business and Facilities Management Businesses.
Ability to pass on costs to customers, thus sustainable margins despite higher manpower costs. Management shared that the contracts are renewed in staggered terms, where there would be 4%-6% upward adjustments in total contract value. This would help to cushion the inflationary pressure due to manpower crunch and regulatory changes on minimum wage.
Prudent management on acquisition deals. The Group has various acquisitions experience where the acquired companies have bode well with the Group’s business model and has been performing since acquisition. Management shared that historically, its acquisitions were internally funded by cash and were made in staggered payments with profit guarantee conditions. Therefore, these acquisition deals would not hit the Group’s cash flows as it is partially self-funded (i.e. profit from the acquisition target would be used to pay off the acquisition costs). Management noted that some of the assessment criteria for potential acquisition target are: accreditation and awards, terms of the company’s existing contracts, profitability of the company, and reputability.
IPO price at a discount to peers. With all three business segments are profitable and provide recurring income, stable margins, positive operating cash flows, and a high return on equity (FY15 ROE at 89%, pre-invitation), Advancer Global trades at a post-IPO historical P/E of 8.73x, lower than the industry average of 20.6x.
Decent dividend yield. No fixed dividend policy but the Group intends to declare and distribute dividends of at least 50.0% of PATMI for each FY2016, FY2017 and FY2018 to its shareholders. Taking the secured order book of S$43.1mn as at 2 June 2016 as a conservative gauge of FY16 top line, FY15 PATMI margin of 9.8% (which the management guided that it should be sustainable), and 50% payout ratio, this implies a dividend yield of 5.5% at the offering price of S$0.22.
Application for IPO shares closes at Thursday 7 July and trading commences 11 July 9am.