SINGAPORE (Mar 13): IPS Securex — which provides a wide range of security technologies and products — is enjoying steady growth in business as governments and public sector organisations step up their defence against threats and uncertainties.

“Globally, the world is plagued with issues of terrorism, conflicts, political unrest and rising turmoil, leading to many lives in disarray and unsafe environments,” says Kelvin Lim, executive director and group chief executive officer of IPS Securex, in an interview with The Edge Singapore.

Lim, a 16-year security industry veteran, adds: “One thing I love about my trade is that things are always changing [both technology and political situations].”

Main image: The past three years were tough on IPS Securex amid several political changes, which caused projects to be delayed

The company distributes, installs and maintains homeland security products, among them being vehicle and cargo inspection systems, portable imaging systems, checked baggage inspection systems and non-lethal countermeasure systems. They also specialise in surveillance cameras and video management systems.

Last year, IPS Securex secured five projects totalling $25 million from various governments all over Asia. The group segregates its business regions into Singapore, East Asia (China, Hong Kong and Japan), Indochina (Thailand and Vietnam), and the rest of Southeast Asia (Malaysia, Brunei and Indonesia). In 2018, they received only $2.6 million from two projects. Their current order book should be much higher considering its other unfulfilled contracts in the previous years. However, the company says it cannot reveal its current order book value as it has not been made public.

Year-to-date, shares in IPS Securex have increased by 72.5% to close at 6.9 cents on March 11, giving it a market value of $33.5 million.

There is currently no analyst coverage on IPS Securex. RHB Group Research ceased coverage on the stock in December 2017 due to the group’s internal resource relocation, coupled with the low institutional interest and trading liquidity of the stock. RHB’s last call was “neutral” with a target price of 9 cents.

Fluctuating earnings

In its latest 2QFY2020 results, IPS Securex recorded earnings of $682,800 — a significant jump from $23,600 in 2QFY2019. Revenue for the second quarter ended Dec 31 2019, came in at $5.7 million, more than double that of $2.5 million recorded in the same period last year, with higher contribution from its security solutions business.

Revenue from the security solutions business was $4.3 million in 2QFY2020, a significant jump from $523,000 a year ago. This was mainly attributable to higher sales of security products to customers in Singapore, Indochina and East Asia, as well as higher contribution from providing integrated security solutions in Singapore and the rest of Southeast Asia.

However, IPS Securex’s maintenance and leasing business saw a 30.5% y-o-y drop in revenue to $1.4 million. This was mainly due to the absence of revenue in 2QFY2020 from an ad-hoc replacement of a component in a security system, which was present in 2QFY2019. Lower maintenance and support services revenue to customers in the region, and Singapore, led to the lower turnover in this segment as well.

While many of the company’s clients tend to be government or public sector organisations, it is not entirely immune to bad debts. During the quarter, it had to make higher allowances for doubtful debts to provide for overdue outstanding balances from certain customers, increase in allowance for inventory obsolescence, inventories written off and bank charges. As a result, its other operating expenses increased from just $2,000 in 2QFY2019 to $124,000 in 2QFY2020.

As Lim explains, these figures are part of the group’s adoption of the new accounting standard last year. These are overdue outstanding balances from certain customers in Singapore (more specifically its clients in the construction industry), which usually require more than six months to fulfil their balances. Once these clients have paid up, the value will be reflected in the next quarter’s results under other income, he says.

Governments and uncertainties

IPS Securex listed on the Catalist Board of the Singapore Exchange (SGX) in 2014 and was then riding high on new contract wins such as a $4.5 million job given by the Housing Development Board to install, lease and maintain the Alert Alarm Systems (AAS) — an alert system used by the elderly in emergencies — for several residential blocks here.

But the company found itself in the red with a reported loss of $2.5 million in FY2017. It managed to arrest the drop in FY2019 however, narrowing losses to some $1.2 million.

Lim blames this slide on regional changes. When governments change, projects would suffer delays, as the new parties in power would want to review all contracts signed by their predecessors, he adds.

“Three years ago, Southeast Asia was seeing a lot of political uncertainties, in terms of several countries changing governments. In over 20 years of working in the industry, I have never faced such issues before,” he continues.

“When governments have no budget, they will not call for tender and there will not be any jobs. So, everyone is actually struggling. But on the positive side, only the strong will survive in these bad times. So, I now have less competition,” adds Lim.

To wade through the downturn, IPS Securex had to rethink its strategies. “We continue to invest in people and our business, while managing out costs in a prudent manner through constant monitoring of cost structure and streamlining operations where necessary.” Furthermore, IPS Securex has on hand sufficient maintenance contracts to bring in a steady stream of recurring revenue.

The company is also constantly improving its operations in order to improve its revenue stream. Lim says he makes it a point to engage its customers more. Through feedback, the company can try to customise their products to give its customers an integrated solution to tackle other problems.

For instance, IPS Securex is now customising its products using artificial intelligence (AI), to help certain businesses. For example, the group is able to leverage on AI to install a tracker in its CCTVs placed in malls to alert the mall security staff when a vehicle is illegally parked within its premises.

Future growth

While IPS Securex’s main customers are government bodies and agencies, it also plans to drive new growth from the commercial segment as well. Amongst other things, they plan to lease their products to their commercial clients such as malls, office buildings and other private developments, while including a maintenance package. “Moving forward, I can see our market share increasing [in the commercial space],” he says.

“We will actually carve out a solution for our clients to save their worries. The most important thing is that they don’t have to worry about their budget or capital expenditures. And after two or three years, when technology advances, we will upgrade the product for them,” Lim continues.

In FY2019, the IPS Securex’s largest market by revenue is Singapore. But Lim hopes this will change as he ekes out new growth. “Currently, our footprints in Southeast Asia are strong. North Asia will be the next possible growth region, which we will be looking at growing into for the next two to three years,” notes Lim, who has his eyes on the markets of India and China moving forward.