APAC Realty - Phillip Securities 2019-07-12: Ushering In An Era Of Growth

APAC REALTY LIMITED (SGX:CLN) | SGinvestors.io APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Ushering In An Era Of Growth

  • Established agency organically growing its agency force.
  • 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 business.
  • Maintain BUY with a target price of S$0.65.



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. Northstar subsequently acquired Hersing’s subsidiaries and incorporated APAC Realty in 2013.


Investment Merits/Outlook


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 consistently held the leading position in market share of transacted units across all segments. ERA Realty has not consolidated any agency 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, the Group 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 revenue from training, property valuation and management arms account for 15.8% of FY2018 gross profit. The gross margins for the brokerage and non-brokerage segments are at 10.7% and 88%, respectively. The Group’s acquisition of ERA APAC Centre, via acquisition of shares in HC Home, in June 2018 will build up the 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 down-cycles.


Recommendation

  • APAC Realty is poised to flourish from its imminent entry into overseas markets as well as its strong presence in Singapore – which it holds the second biggest market share in terms of agents.
  • Further, the asset-light nature of the brokerage business and the variable pay structure of most of its salesforce allows APAC Realty to maintain or grow their high ROE.
  • APAC Realty is still trading below its peak, at a P/E of 9.1x. Maintain BUY with a target price of S$0.65.





Tara WONG Phillip Securities Research | https://www.stocksbnb.com/ 2019-07-12
SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650



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