APAC Realty Limited (“APAC Realty”) (SGX:CLN) and PropNex Limited (“PropNex”) (SGX:OYY) are two leading real estate services providers listed on the Singapore stock exchange.
In this article, we will make some quick-and-dirty comparisons, numbers-wise, between the two companies to help you determine which might give you more value for money.
Introducing the companies
APAC Realty is a leading real estate services provider in Asia. The company provides real estate brokerage services, franchise arrangements, training, valuation and other ancillary services. APAC Realty’s real estate brokerage services are operated by its wholly-owned subsidiary ERA Realty Network Pte Ltd (“ERA Realty”). ERA Realty is one of Singapore’s largest real estate agencies with 7,107 agents registered as at 28 February 2020.
APAC Realty holds the exclusive ERA regional master franchise rights for 17 countries in the Asia Pacific. Through its ERA franchise network, the company has one of the largest brand footprints in Asia with more than 17,300 salespersons across 651 offices in 10 countries. The company also holds the master franchise rights for Singapore for Coldwell Banker, one of the oldest and most established real estate office and franchising companies in the United States.
On the other hand, PropNex is Singapore’s largest listed real estate group with 8,441 sales professionals, as at 23 February 2020. The company’s key business segments include real estate brokerage, training, property management and real estate consultancy services. It leads the real estate agency services, with a substantial market share in the residential segments of new project launches, private resale, HDB resale and rental including commercial and industrial properties. The company has a regional presence in Vietnam, Indonesia and Malaysia, with a combined total of more than 2,000 overseas salespersons.
The table below shows the market capitalization, revenue and profit levels for both companies. Note that the market capitalisation is as of 24 August 2020, and the revenue and profit numbers both relate to the fiscal year 2019.
|(All numbers in SGD)|
|Market Capitalisation||131.42 million||214.60 million|
|Revenue||369.52 million||419.84 million|
|Profit after taxation||13.88 million||21.12 million|
|Profit attributable to owners of the company||14.01 million||20.04 million|
Round 1: Profitability
We start by looking at the profitability of each company in terms of their net profit margin and return on equity ratio.
|The fiscal year 2019|
|Net profit margin||3.76%||5.03%|
|Return on equity (“ROE”) ratio||9.63%||27.87%|
From the above table, PropNex’s net profit margin of 5.03% edges APAC Realty’s net profit margin of 3.76%. PropNex is more efficient in managing its costs. Additionally, PropNex’s ROE ratio of 27.87% is more than doubled of APAC Realty’s ROE ratio of 9.63%. This gives the impression that PropNex’s management is more efficient in allocating and converting every dollar of investor capital into profit.
Round 2: Liquidity
|The fiscal year 2019|
|Net gearing ratio (Net debt / equity)||15.53%||N/A – net cash|
From the table above, we find that PropNex’s current ratio and cash ratio are superior to those of APAC Realty. Since both ratios are above 1, they demonstrate that PropNex not only has sufficient current assets but also cash, to cover its current liabilities. Conversely, APAC Realty’s cash and cash equivalents are only 0.35x of its current liabilities.
Furthermore, APAC Realty’s has a net gearing ratio of 15.53%; while PropNex is in a net cash position, with cash and cash equivalents of SGD81.61 million on its balance as at 31 December 2019. As investors, we should recognise that debt is a double-edged sword. Debt can be the gasoline for growth, but it can also cripple a business when cash flow is tight. Our preference is always for a conservatively managed balance sheet.
Round 3: Growth
We will compare the compounded annual growth rate of revenue and net profit of the two companies for the past 5 years. Companies that can grow their sales and profitability can see their share price rise.
|The fiscal year 2015-2019|
|Net profit growth||13.08%||26.27%|
PropNex has superior revenue and net profit growth compared to APAC Realty. As investors, we should invest the factors fueling PropNex’s growth and why such causes are not apparent for APAC Realty even when both companies are operating in the same industry and face similar competitive forces. In short, we need to find out if PropNex has a competitive edge over APAC Realty.
Round 4: Valuation
Finally, we will compare the price to earnings (“PE”) and dividend yields of the companies.
|Share price (as at 24 August 2020)||SGD0.37||SGD0.59|
(Source: Google Finance)
Overall, PropNex is trading at a slightly cheaper valuation than APAC Realty despite having significantly higher ROE ratio. However, APAC Realty’s dividend yield is a bit higher at 5.41% versus 5.08% for PropNex. Overall, there is little to differentiate between the two companies in terms of valuation.
In summary, PropNex is the overall winner here as the Company has won 3 out of 4 rounds. While this is a simple exercise, comparing just a few financial aspects of both companies, it hopefully serves as a good starting point in deciding which company is more interesting to investigate further.
Aside from the financial metrics, we urge investors to carefully study the prospects for each business, and consider the capabilities of each management team in executing their business plans.