APAC Realty Ltd (SGX: CLN), a real estate brokerage company that operates through the ERA brand, has seen its share price tumble 26% since its listing late last year. The drastic drop in the share price was mostly due to the surprise announcement of additional property cooling measures and its competitor, PropNex Ltd (SGX: OYY), going public in July this year.
However I feel that the large sell-off may have been overdone. Even with the near-term uncertainty in the local property market, I believe investors who are willing to play the long game will be rewarded in the future. Here are three reasons why.
Long-term growth in the local property market
As we all know, Singapore’s property market tends to do well over the long-term. Limited land supply, a bustling economy and low interest rates have been key drivers of the property market. In addition, Singaporean’s appetite for property investment have been another reason for the staggering rise in property prices over the last few decades.
The Singapore government is not keen to see property prices go out of control and has therefore, put property cooling measures in place. But these property cooling measures are not aimed to stagnate prices over the long-term but instead to ensure that property prices increase in tandem with wage growth. As such, I am confident that inflation will take its natural course over a longer time frame. As one of the top property brokers in Singapore, APAC Realty is, therefore, in a good position to take advantage of the long-term growth in property prices.
APAC Realty has a track record of doing well even in subdued markets
Singapore private property prices declined for 14 straight quarters from the second quarter of 2013 to the first quarter of 2017. However between 2014 to 2016, APAC Realty still managed to report improvements in both its revenue and net profit. Below is a table outlining its key financials over this period of subdued property prices:
Source: Writer’s compilation of data from Morningstar
As you can see, despite a slight decrease in net income in 2015, the company rebounded strongly in 2016, surpassing even its 2014 results. Impressively, during the three-year period of property price decline, the group still managed to post a compounded growth in net income of 9%.
Perhaps the biggest reason to invest in APAC Realty right now is the attractive valuation. Following the steep sell-off, APAC Realty now trades at just 7.2 times its earnings and 6.7 times its free cash flow. It also has an attractive trailing dividend yield of around 7%.
This is a steep discount to its initial public offering (IPO) price which had a price-to-earnings multiple of 13.5 and a price-to-free cash flow of 10.9.
The Foolish bottom line
Despite the recent pessimism surrounding the property market in Singapore, I believe the long-term picture still looks rosy. Singapore’s property market has historically done well and the government is only putting in measures to ensure that property prices rise sensibly.
Moreover, with the steep sell-off of APAC Realty’s stock, I believe current valuations look very attractive. When the dust eventually settles, investors who were willing to play the long game would likely reap the returns.
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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 writer Jeremy Chia doesn’t own shares in any companies mentioned.