Recently, while I was researching stocks to add to my portfolio, I came across a few Singapore-listed companies that I thought were interesting. A quick search on the internet also showed that not many investment analysts cover these companies extensively.
In this article, I will discuss the fourth company that I like: APAC Realty Ltd (SGX: CLN). For the first three companies in this series, you can check out the following:
APAC Realty, which was listed on Singapore’s stock market in September 2017, is a real estate services provider with three primary business segments: real estate brokerage services; franchise agreements; and training, valuation, and other ancillary services.
The real estate brokerage services segment is operated by APAC Realty’s wholly-owned subsidiary, ERA Realty Network Pte Ltd, one of Singapore’s largest real estate agencies. The flowchart below, from APAC Realty’s initial public offering (IPO) prospectus, summarises its business model:
Source: APAC Realty IPO prospectus
The most important component of APAC Realty’s gross revenue comes from the commissions generated from property transactions by its agents. The bulk of this revenue stream is paid out to the agents themselves as commissions, and what is left for the company is the gross profit.
For APAC Realty’s financial year ended 31 December 2017, 84.9% of its gross profit was from the brokerage business, such as private residential property sales and rental. The remaining 15.1% was from non-brokerage businesses such as training, property valuation, and property rental.
The financial numbers
One of the main things to look at before investing in a company is its financial performance. From 2014 to 2017, APAC Realty’s revenue has grown at a compound annual rate of 22.4% to S$400.6 million. Its net profit has done even better, rising by 28.5% per year to S$25.9 million.
The company has also been generating plenty of free cash flow. In 2017, cash flow from operations surged 52.7% to S$34.6 million. With capital expenditure for the year coming in at S$0.5 million, free cash flow climbed to S$34.2 million in 2017, up by 52% from S$22.5 million in 2016. Free cash flow is the cash generated from APAC Realty’s business that it can use to pay out dividends to shareholders, buy back shares, make acquisitions, or strengthen its balance sheet, among other things.
APAC Realty ended 2018’s first quarter with a solid balance sheet. As of 31 March 2018, it had S$63.5 million in cash and bank balances, with no debt.
The growth drivers
With regards to the outlook ahead, Jack Chua, the executive director and chief executive of APAC Realty, shared the following comments in the company’s 2018 first quarter earnings update, which was released on 9 May 2018:
“We are pleased with the good set of results achieved for 1Q FY2018. The property market is recovering. Going forward, we intend to strengthen and grow our presence in Singapore and the Asia-Pacific region, expand our range of services, and enhance our technological capabilities to remain a leader in our industry and a stalwart of the ERA brand here in Singapore and across the region.”
The property market in Singapore is indeed recovering. Data from the Urban Redevelopment Authority released in April 2018 showed that prices of private residential properties rose 3.9% year-on-year in the first quarter of 2018, the sharpest growth in almost eight years since the second quarter of 2010.
Growth for APAC Realty could also come from overseas markets as the company is looking to expand its geographical presence in the Asia-Pacific region. This can be done by setting up a brokerage office, entering into sub-franchise arrangements with local operators, or acquiring an existing agent network. The expansion aims to allow the company to “develop an additional source of income, create synergies with our Singapore operations and diversify our exposure to the Singapore residential property market.”
Apart from Singapore, APAC Realty already holds exclusive ERA regional master franchise rights in countries such as Australia, China, Indonesia, Thailand, and Vietnam.
The Foolish takeaway
I think APAC Realty is an excellent proxy to the Singapore property market, apart from property development companies; property developers usually carry higher risks. APAC Realty also has a history of strong growth, has an excellent balance sheet with no debt, and has a strong position in its market (ERA is one of the largest real estate agencies in Singapore).
At its current share price of S$0.835, APAC Realty has a price-to-earnings ratio of just below 10 (based on its earnings over the last 12 months), and has a dividend yield of 2.4%. In contrast, during its IPO, the firm had a price-to-earnings ratio of 14.8 times (based on its 2016 earnings).
Worried about the overall state of the market? Do you know the 1 thing you should never do in the stock market? The Motley Fool Singapore’s new e-book lays out a plan to handle market crashes, details the greatest advantage you have as an investor, and looks at decades worth of market data to bring you the smartest insights on investing. You can download the full e-book FREE of charge—Simply click here now to claim your copy.
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 owns shares in APAC Realty Ltd.