We reproduce below three questions that Securities Investors Association of Singapore (SIAS) has sent to ISOTeam. This is part of SIAS' initiative to ask three "carefully researched" questions for each company that it selects ahead of their AGMs.
"The aim is to help improve the quality of engagement between management and shareholders at general meetings," according to a Business Times report today.
In addition, SIAS hopes that the questions will help shareholders to focus on the important areas for discussion and give companies an opportunity to constructively engage with shareholders.
To provide the service, SIAS engages a team of analysts -- they are not regular analysts from broking houses -- to scrutinise the companies' annual reports. SIAS, which is a non-profit group, has estimated the cost of the programme at about S$1 million this year to cover 200 companies; the extent of coverage is expected to expand over the next few years, reports Business Times. The questions sent by SIAS to various companies to date can be found on its webpage.
1. The group has done exceptionally well over the past 5 years. As can be seen in the “Financial Highlights” (page 14 of the annual report), the cumulative annual growth rate (“CAGR”) for revenue, gross profit and net attributable profit has been 39%, 56% and 45% respectively for FY12 to FY16.
Since the listing, profit margin has increased from 19.3% in FY14 to 25.7% in FY16 but net attributable profit margin has hovered just under 10% in FY15 and FY16. Similarly, return on equity and return on assets showed some small decreases.
As the group broadens its services and geographical reach, can shareholders expect the same quality of earnings? Has the board set certain targets for management?
2. The company has a proven track record of close to 20 years in Singapore’s building maintenance and estate upgrading industry. The group now has eyes on overseas markets, including Indonesia, Malaysia and Myanmar.
While these markets offer huge potential, are these markets structurally very different from the Singapore market where demand is supported by government initiatives and regulatory requirements? What is management’s strategy to enter and grow in these three new markets?
What would be the focus areas in these markets? As the group enjoys economies of scale in the local market, how will it adapt as it tries to establish a foothold in these new markets?
3. The group acquired four subsidiaries in January 2015 which were strategic in expanding the range of the group’s capabilities. In January 2016, the group added TMG Projects Pte Ltd.
In the joint Chairman and CEO Message, it was disclosed that the group is still “on the lookout for other potential acquisition targets to further widen our capabilities to include providing mechanical and electrical, as well as conservancy cleaning services”.
(i) What has the company learnt from the acquisitions and subsequent integration in the past two years?
(ii) There was a write-off of $0.6 million in goodwill in FY2015 for the acquisitions done in the year. What guidance does the board give to the management to ensure that the group does not overpay for acquisitions?
(iii) Lastly, how does the company ensure that the ISOTeam “DNA” is not diluted as the group makes more acquisitions?