APAC Realty Limited - Phillip Securities 2019-06-03: Ushering In An ERA Of Growth


APAC Realty Limited - Ushering In An ERA Of Growth

  • Established market player with demonstrated ability to organically grow its agent base.
  • Building an international presence through the ERA regional master franchise rights for 17 countries. Announced in Feb 2019 strategic partnerships with ERA Indonesia and ERA Thailand.
  • Non-brokerage income stream with GP margins of 88% (brokerage 10%) to provide some buffer to the transaction based business.
  • Initiate coverage on APAC Realty with a BUY and Target Price of S$0.65.

Company Background

  • ERA Realty Network Pte Ltd (ERA Realty), a wholly-owned subsidiary of APAC REALTY LIMITED (SGX:CLN), was established in 1982 and is among the top two real estate brokerages in Singapore. APAC Realty’s wholly-owned subsidiary Realty International Associates Pte Ltd (RIA) operates training programmes and courses for real estate agents and also undertakes valuation work on behalf of clients.
  • APAC Realty holds the ERA regional master franchise rights for 17 countries in Asia Pacific as well as the master franchise rights for Coldwell Banker – one of the most established US real estate franchising companies – in Singapore.
  • Prior to its listing on the SGX Mainboard in Sep 2017, the Group was part of Hersing Corporation Ltd (Hersing) – which was listed on the SGX-ST in 1998 and privatised in 2012. The Group subsequently acquired Hersing’s subsdiaries and incorporated APAC Realty in 2013.

Investment Merits

Established market player

  • ERA Realty is a household name in the real estate brokerage scene in Singapore since 1982. Notwithstanding the consolidation activities in the agency market, the Group had consistently held the leading position in market share of transacted units across all segments.
  • ERA Realty has had not had any agency consolidation exercises to-date, underscoring its ability to organically grow its agent base.

Meaningful international presence

  • APAC Realty holds the ERA regional master franchise rights for 17 countries, nine of which are existing ERA sub-franchisees. In Feb 2019, the Group announced a partnership with ERA Indonesia to fund the purchase of the Indonesia country master franchise operations from its current shareholders.
  • In addition, APAC Realty entered into a strategic cooperation agreement to directly own the ERA master franchise rights for Thailand. These sets in motion future overseas expansion plans, to eventually diversify its earnings base out of Singapore.

Non-brokerage income stream to lend a buffer

  • APAC Realty’s non-brokerage stream, which comprises its training, property valuation and management arms, comprised 15.8% of its FY2018 gross profit. The gross margins for the brokerage and non-brokerage segments are at 10.7% and 88%, respectively.
  • APAC Realty’s acquisition of ERA APAC Centre, via acquisition of shares in HC Home, in June 2018 adds on to the Group’s stream of non-brokerage income. While revenue from the brokerage segment will continue to be the mainstay, recurring income from its non-brokerage stream helps lend a buffer especially in property downcycles.

Initiate coverage on APAC Realty with a BUY and a Target Price of S$0.65

  • Our DCF-derived target price of S$0.65 is based on a cost of equity of 7.2% and a terminal growth rate of 0%.
  • APAC Realty is currently trading at a PE ratio of 9.15x, which is on par with its historical mean and at a c.35% discount from that of its regional peers. See APAC Realty's share price history.
  • See attached 29-page PDF initiation reports for complete analysis on Singapore property agencies - APAC REALTY LIMITED (SGX:CLN) and PROPNEX LIMITED (SGX:OYY).

Tara WONG Phillip Securities Research | https://www.stocksbnb.com/ 2019-06-03
SGX Stock Analyst Report BUY INITIATE BUY 0.65 SAME 0.65