• The only integrated and complementary manpower solutions and facilities management services provider in Singapore, with strong track record and economies of scale. All three business segments are profitable and providing recurring income.
• Favourable business trends and synergistic acquisitions would support its next phase of growth.
• With 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. Subscribe.

Investment Summary

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.

Financial Highlights

Source: IPO Prospectus

Peer comparison

Source: Bloomberg, Phillip Securities Research (Singapore) (PSR)

COMPANY BACKGROUND AND HISTORY

Business Segments

1. Employment Services Business

a. Provide one-stop shop services for the sourcing, employment and training of foreign domestic workers (“FDWs”) to households

• Primarily carried out by wholly-owned subsidiary Nation Employment
• Sales branches carrying “NATION” brand are located primarily in retail locations such as Yishun, Tampines, Toa Payoh, Hougang, Woodlands and Jurong East
• Customers comprise mainly walk-in and repeat individuals
• Headquarters in Jurong East also house training facilities to provide training for FDWs
• FDWs are recruited from MOM-approved source countries (mainly from Indonesia, the Philippines, Myanmar, and Cambodia), sourced by overseas recruiters
• Employment period generally lasts up to 2 years

b. Sourcing and employment of foreign workers (“FWs”) to, amongst others, corporations and organisations

• Hire blue-collared workers for the manufacturing and services sectors through wholly-owned subsidiary Enreach at the request of its customers
• FWs are mainly sourced from the PRC

2. Cleaning and Stewarding Business

a. Provide integrated cleaning and stewarding solutions and services

• Services provided through its wholly-owned subsidiaries, First Stewards, Master Clean and World Clean
• Targeted clients are commercial properties, hospitals, hotels and resorts, shopping malls, F&B outlets, private clubs, educational institutions and private residences
• Prefers to outsource cleaning and stewarding activities instead of hiring permanent employees to maintain a relatively lean workforce and to reduce labour costs
• Contract basis of up to 2 years

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

• Providing security officers to maintain the security of customers’ premises
• Providing security officers for a range of events, including exhibitions, and entertainment shows
• Providing security escort and bodyguard solutions and services
• Providing security solutions and services during ATM machine maintenance
• Providing consultation solutions and services to existing customers on their security systems

Financial Highlights

Good Track Record

Corporate Milestones

Awards and Accreditations evidencing quality solutions and services

Strong and dedicated management team and employees

Household brand, supporting its recurring income

• Its Facilities Management Business has more than 400 corporate customers. Ranging from hospitals, multinational corporations, shopping malls, hotels and resorts. Management corporations of residential and commercial properties, food and beverage shops and entertainment venues.
• Notable customers served: Novotel Singapore, Mandarin Orchard, Frasers Centrepoint Malls, Tan Tock Seng Hospital.
• For FY15, customer retention rates for Cleaning and Stewarding Business and Security Services Business were 80.4% and 91.6%, respectively.
• FY2016 total order book as at 2 June 2016 excluding Employment Services Business is at S$43.1mn.

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.

SHAREHOLDING STRUCTURE

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 RISKS

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.

Investment Actions

Application for IPO shares closes at Thursday 7 July and trading commences 11 July 9am.