Is APAC Realty Limited A Good Investment?

The property market has been an important pillar of the local economy due to a buoyant job market, small land area, and affluent population. Show flats of new property launches are a common sight even during the past few years when the property market was in a doldrum.

In each show flat, we can find smartly-dressed property agents guiding prospective home buyers around, highlighting the unique selling points ranging from home features, amenities to good locations. The common real estate agencies found in Singapore include ERA, Propnex, Huttons, Orangetee etc. Among these companies, there is one that is a listed entity on the Singapore stock exchange. It is none other than ERA, listed as APAC Realty Limited (APAC).

So if you are keen to be part of the recovering Singapore property market, read on to find out more.

Stock Information

SGX Stock code: CLN

Market Capitalisation: $369m

Industry: Real Estate Management and Development

Business

APAC is one of the leading players in the real estate brokerage industry in Asia. It operates three business segments: real estate brokerage; franchise agreements; and training, valuation and other ancillary services.

Its real estate brokerage business comes in the form of ERA Realty Network. ERA derives commission fees from providing various brokerage services covering primary sales, secondary sales and rental of residential, commercial and industrial assets.

Under franchise agreements, APAC holds exclusive ERA master franchise rights over 17 Asia countries. It also holds Singapore’s franchise rights for Coldwell Banker, one of US most established real estate companies.

APAC also conduct training programmes and courses for real estate agents in Singapore, as part of the industry’s continuous skills development efforts. It also takes on valuation and property management services for clients such as government bodies and financial institutions.

Latest Results Announcement

For FY17, APAC registered revenue of $396m, 39.6% higher than FY16 revenue of $284m in FY17. Its operating profit jumped from $18m to $29m year-on-year, a 62.8% increase. Net profit was $25.9m, a 63.1% increase over $15.8m recorded in FY16.

APAC has total assets of $235m and total liabilities of $102m. Notably, its cash balance is $61.9m, a big increase year-on-year from $17.7m. This is probably due to APAC has just gone public – its IPO took place in Sept 2017.

Moving on to cash flow. Its net operating cash flow stood at $34.6m for FY17, an improvement from $22.6m in FY16.

Based on the figures extracted from APAC’s FY17 results announcement, it seems that the company had a good year with growth in revenue, profit, and improved the balance sheet and strong cash flow.

Strengths/Opportunities

Market Leader in Local Real Estate Industry

ERA Realty has one of Singapore’s largest real estate network. According to APAC’s IPO Prospectus, it ERA commands a 21.1% share in the number of agents in Singapore, as at Mar 2017. The sheer scale of agents leads to economies of scale, allowing ERA to secure a large number of brokerage contract for property launches. A strong presence at property launches further enhance ERA’s brand name and helps in attracting and retaining more agents to join the company. This would contribute to a growing revenue.

Source: APAC Realty Limited IPO Prospectus

Recovering Local Real Estate Market

The local property market has shown signs of recovery such as brisk sales of new launches and bullish land bids by real estate players. Should the widely expected recovery truly takes place, APAC will benefit greatly from the industry upturn. In addition, its market-leading position allows APAC to serve different real estate players across a large number of launches, making it the most direct beneficiary to a recovering property market.

Weaknesses/Threats

Increased Market Competition

The real estate brokerage industry in Singapore is competitive. From the diagram above, it is noteworthy that ERA faces competition from other players such as Propnex, Huttons Asia and Orangtee etc. Increased competition may affect the transaction volume and level of commission that ERA charges to developers, thus impacting the earnings.

APAC also faces the threat of high turnover for sales agents, as top-performing salesperson may be poached by competitors, bringing along with him a large chunk of sales network and volume.

Impact of Government Policies and Rising Interest Rate

The slew of property cooling measures implemented since 2011 are still in place. Singapore government has stated clearly that they do not wish to see runaway property prices, and should that happen, the government would likely roll out new cooling measures to dampen property prices. So while a recovering property market bodes well for APAC, it is also a double-edged sword should the price recovery takes place too rapidly.

Accompanying the government policies closely is the issue of interest rate. A rising interest rate, which is already happening, could affect the mortgage servicing ability of home buyers, especially those that took on a large loan. Should there be signs of increasing default on mortgage payments, the government may be prompted to take action to cool down the market. Apart from that, rising interest rate also makes mortgage servicing less affordable, hence reducing sales volume.

Shareholding Structure

According to the IPO Prospectus, APAC is majority owned by Asia Pacific Realty Holdings Ltd, with a direct interest of 72%.

Other Cornerstone Investor includes FIL Investment Management (Hong Kong) Limited (4.3%), a fund management company; Qilin Asset Management (3.4%), family office owned by Chairman of Soilbuild Group; and Asdew Acquisition Ptd Ltd (1.7%), an investment company owned by Mr Wang Yu Huei.

If you are just getting started in learning about investing in the Asian Stock Market, we have created a full 15-Video Course for you to help you get up to speed on how to look for great investments in Asia. Click here to find out more.

 

CS Jacky

CS Jacky is a Remisier and Financial Adviser with Phillip Securities Pte Ltd. Graduated with a Bachelor in Business Administration (Finance), he has been investing in the stock market since 2010. He identifies companies with good prospect trading at a low valuation using a unique blend of fundamental, technical, and portfolio analysis. He also holds REITs and dividend paying shares. He holds regular seminar to share about market updates, investment insights of specific stocks in his watch list, and overall wealth management for retail investors. He is the owner-blogger of 'CS Jacky - 360 Wealth Management' and a guest writer for Value Invest Asia.

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