A Deep Dive into APAC Realty Ltd, One of the 30 Best Stocks in Singapore for 2018

APAC Realty Ltd (SGX: CLN) is a real estate services provider that got listed on Singapore’s stock market in end-September 2017.

The company was featured as one of the 30 best stocks to own in Singapore for 2018. The 30 best shares were picked using Joel Greenblatt’s Magic Formula, which was made famous in Greenblatt’s book, The Little Book That Beats The Market. To know how exactly the formula works, you can head here.

To apply the formula, we should just “close our eyes,” buy the 30 stocks, and hold them for a year. However, some investors may not like this hands-off approach. If you belong to the hands-on camp, this new series of articles is for you.

Starting from the last company in the list of Magic Formula stocks for 2018, we will take a look at each of the 30 stocks’ business and critical financial figures to help you understand them better. (Note: Hengxin Technology Ltd (SGX: I85), which is the last company on the list, has been suspended from trading due to a voluntary delisting of its shares. As such, it is not part of the series.)

With all this out of the way, let’s roll.

Understanding the business

APAC Realty has three main business segments: real estate brokerage services; franchise agreements; and training, valuation, and other ancillary services. The real estate brokerage services segment is operated by its wholly-owned subsidiary, ERA Realty Network Pte Ltd, which is one of the largest real estate agencies in Singapore.

The company’s revenue and profit

Firstly, we will look at the income statement. This statement shows us how much revenue the company brought in from the sale of its goods and/or services, and how much is left after paying all the various expenses needed to run the business. The leftover portion is the profit.

The table below shows the key figures from APAC Realty’s income statement in its last three financial years (the company has a financial year that ends on 31 December every year):

Source: S&P Global Market Intelligence

The real estate services provider has grown its revenue, gross profit, and net profit commendably over the past three years.

The company’s financial health

Although revenues and profits are important, they do not tell investors the whole story. For instance, the income statement does not show if a company can survive a prolonged economic downturn. The balance sheet, however, can reveal the health of a company by providing a snapshot of its financial condition.

The table below shows the key figures from APAC Realty’s balance sheet over the last three years:

Source: S&P Global Market Intelligence

Even though the company is not debt-free, its debt looks manageable, given the low total debt to equity ratio. APAC Realty is thus highly likely to be able to survive rough conditions.

The company’s cash flows

Many of you may have heard the saying, “Cash is king”. Although the income statement shows the amount of profit a company makes every year, this profit does not necessarily translate into the actual cash that flows into a company’s coffers due to accrual accounting.

Accrual accounting requires businesses to record revenues and expenses when the transactions happen, not when the cash is exchanged. Also, the income statement usually includes non-cash revenues or expenses. To get a true picture of the flow of cash in and out of a company, we have to look at the statement of cash flows.

The table below shows the key figures from APAC Realty’s statement of cash flows, for the same period as its income statement and balance sheet shown above:Source: S&P Global Market Intelligence

The company has generated positive free cash flows for the period under observation. Free cash flow is cash that the company can use to pay out dividends to shareholders, buy back shares, make acquisitions, or strengthen the balance sheet, among other things.

According to its initial public offering (IPO) prospectus, APAC Realty intends to distribute dividends of at least 50% of its net profit after tax (excluding exceptional items) for the period from the listing date to 31 December 2017 and for 2018.

The Foolish takeaway

We have looked at the essential financial figures needed to analyse APAC Realty’s historical business performance. Hopefully, these numbers can give you a better sense of its business. Stay tuned for more on the rest of the companies from the 2018 best stocks list. For a repository for all the articles in this series, head here.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.