APAC Realty, a market-leading Singapore-based real estate brokerage, made its trading debut on the Mainboard today. It has three main business segments – Real Estate Brokerage Services, Franchise Arrangements, and Training, Valuation & other Ancillary Services.
Singapore’s primary residential market (excl. ECs) transaction volume is forecast to grow at a CAGR of 5.6% from 2017 to 2021. Government policies, steady population income growth, and limited supply of residential units are some potential drivers for the industry.
APAC Realty intends to recommend and distribute dividends of at least 50% of net profit after tax (ex. Exceptional items) for FY17 and FY18. Its FY16 P/E ratio of 14.8x compares with the market capitalisation weighted average of 11.4x for SGX’s 10 largest Real Estate M&D stocks.
Overview and Drivers of Real Estate Market in Singapore
Singapore is the sixth largest real estate investment destination in the Asia-Pacific region, according to data from Real Capital Analytics. Based on statistics from Housing & Development Board (HDB), Singapore’s residential real estate transaction value and volume in 2016 was S$45.8 billion and 159,958 units respectively.
In APAC Realty’s IPO prospectus, Cushman & Wakefield Research believes that long-term prospects of the Singapore residential market remain positive and forecast Singapore’s primary residential market transaction volume (excluding ECs) to grow at a CAGR of 5.6% from 2017 to 2021. With one of the highest resident home ownership in the world at above 90.0%, rising household net worth, coupled with steady income growth, could help propel demand for residential properties in the country.
In its IPO prospectus, APAC Realty has identified some drivers that could impact the Singapore’s residential property market:
- Government Policies and Initiatives – The easing of property cooling measures and introduction of Additional Conveyance Duty on residential property-holding entities would likely increase secondary residential market volumes in the medium term. Additionally, increase in CPF Housing Grant for the resale market (Budget 2017) could incentivise buyers to purchase flats from the HDB resale market.
- Population Income Growth – Median monthly household income grew by 2.6% (in real terms) in 2016 and the average household income per household member have also experienced a similar trend. This steady growth in income is likely to lead to higher demand for residential properties in Singapore.
- Supply of Residential Units – The declining availability of government land sales residential units and depleting unsold land bank from listed developers have resulted in developers increasingly turning to the private en-bloc market. This will likely place upward pressure on primary home prices.
Click here for more information on Singapore’s residential property market in a recent Market Update article.
APAC Realty’s IPO
APAC Realty is the fourth Mainboard listing on SGX this year. APAC Realty is a leading real estate services provider which operates a market-leading real estate brokerage in Singapore under the ERA brand, and operates in three main segments, namely (1) real estate brokerage services, (2) franchise arrangements and (3) training, valuation and other ancillary services. The Company holds the exclusive ERA regional master franchise rights for 17 countries in the Asia-Pacific region, and also holds the master franchise rights for Singapore for Coldwell Banker.
APAC Realty's wholly owned entity – ERA Realty – was previously listed on SGX through its holding company Hersing Corporation in 1998. It was delisted and sold for c.S$130 million by former parent Hersing Corporation to private equity fund Northstar Group in 2013.
Some key extracts from the APAC Realty’s prospectus include:
Business Strategies and Future Plans
- Strengthening presence in Singapore by establishing a new centralized business centre for agents.
- Expanding the range of real estate-related services to increase exposure to higher margins services.
- Penetrate deeper into key markets in the Asia-Pacific region to diversify the company’s exposure to the Singapore property market .
- Enhance, create and/or acquire new technological capabilities to increase business efficiency and improve agent productivity.
- APAC Realty’s management believes an opportunity to drive the next stage of growth for the company could be growing their footprint in China (rapidly growing housing market) where the company currently has limited presence.
Competitive Strengths
- Holds the exclusive ERA regional master franchise rights for 17 countries in the Asia-Pacific region and a member of the ERA global franchise network.
- Focuses on the real estate brokerage market in Singapore which has a deep and attractive residential real estate market.
- One of the largest agent networks in Singapore (6223 agents representing 21.1% of agent share in Singapore as at 31 March ’17. ERA Realty’s agent network 5-year CAGR at 5.0% annually).
- Management team with vast experience in the sector (senior management team have an average of 17 years with the company).
- Maintained a consistent track record of profitability even across property market down cycles.
Key Risks (page 30 of IPO prospectus shows complete list of risk factors)
- The ERA brand is important to the business and APAC Realty is required to adhere to restrictive provisions under the franchise agreements.
- Competition in the industry may affect APAC Realty’s financial performance.
- Business could be affected by fluctuations in Singapore’s residential property market and general macroeconomic conditions.
- Subject to laws, regulations and policies imposed by various government and regulatory authorities may affect operations and/or scope of business.
Financials from Prospectus
- According to the audited financial statements, revenue in FY16 (year ended 31 Dec 2016) was at S$287.7 million, a 23.7% YoY increase.
- Gross profit in FY16 was S$39.9 million, a 27.5% YoY increase. Gross margin at 13.9% (vs 13.4% in FY15).
- Net profit in FY16 was S$15.9 million, increasing 87.2% YoY. Net margin at 5.5% (vs 3.6% in FY15).
- Net cashflow from operating activities in FY16 was at S$22.7 million, a 219% YoY increase.
- While the company does not have a fixed dividend policy, the directors intend to recommend and distribute dividends of at least 50% of net profit after tax (excl. exceptional items) for FY17* and FY18.
* For the period from Listing Date to 31 December 2017
Source: Company prospectus
Revenue Breakdown by Segment in (FY2016)
The company derives 99.9% of their revenue from Singapore with the rest coming from other parts of Asia.
- Real estate brokerage services (97.0% of total revenue) –brokerage income from resale and rental of properties constitute 74.3% of FY16 revenue while brokerage income from new home sales was 22.7% of FY16 revenue. This segment generated 80.9% of the company’s total gross profits.
- Franchise arrangements, training, valuation and other services (3.0% of total revenue) – includes royalties from sub-franchisees in Asia-Pacific, revenue from merchandise sales, training fees from courses conducted, property valuation fees, property management fees, consultancy services fees, rental income and others. This segment generated 19.1% of the company’s total gross profits.
Please see page 58 of IPO prospectus for the detailed breakdown.
Valuation
- According to the prospectus, APAC Realty’s audited FY16 adjusted EPS (based on the share capital of 355,197,700 shares after the share split) was at 4.47 cents (Singapore dollars). This implies a FY16 price-to-earnings (P/E) ratio of 14.8x based on the offer price of S$0.66.
- APAC Realty is a listed real estate brokerage pure play in Singapore. SGX lists another stock which has similar real estate agency services businesses (Asia-Pacific Strategic Investments Limited). The stock has a market capitalisation of S$23.4 million.
- In terms of Real Estate stocks, the 10 largest Real Estate Management and Development stocks trade at a market capitalisation weighted average P/E of 11.4x, this compares with APAC Realty’s 14.8x. These 10 stocks generated an average total return of 31.7% in the YTD, bringing their 1 year return to 31.9%.
Top 10 Real Estate Management and Development (GICS®) Stocks in Singapore
| Name | SGX Code |
Market Cap S$M |
Price S$ |
Total Return 1 Yr % |
Total Return YTD % |
P/E (x) |
P/B (x) |
Dvd Ind Yld % |
|---|---|---|---|---|---|---|---|---|
| Hongkong Land Hldgs | H78 | 23,256 | 9.820 | 3.9 | 10.1 | 3.3 | 0.5 | 2.7 |
| Global Logistic Properties | MC0 | 15,454 | 3.300 | 79.7 | 52.8 | 16.0 | 1.3 | 1.8 |
| CapitaLand | C31 | 15,077 | 3.570 | 15.7 | 21.4 | 9.2 | 0.9 | 2.8 |
| City Developments | C09 | 10,166 | 11.290 | 27.4 | 38.4 | 17.0 | 1.1 | 0.7 |
| UOL Group | U14 | 6,795 | 8.170 | 47.4 | 39.3 | 19.6 | 0.8 | 1.9 |
| Frasers Centrepoint | TQ5 | 5,957 | 2.110 | 47.1 | 41.0 | 9.0 | 0.9 | 4.2 |
| United Industrial Corp | U06 | 4,539 | 3.120 | 15.0 | 13.7 | 18.1 | 0.7 | 1.0 |
| Yanlord Land Group | Z25 | 3,434 | 1.840 | 34.5 | 42.7 | 4.8 | 0.8 | 2.4 |
| Guocoland | F17 | 2,722 | 2.290 | 19.9 | 27.2 | 7.2 | 0.7 | 3.1 |
| Wheelock Properties | M35 | 2,226 | 1.870 | 28.5 | 30.2 | 38.0 | 0.7 | 3.2 |
| Average | 31.9 | 31.7 | 14.2 | 0.8 | 2.4 | |||
| Market Cap Weighted Average | 30.6 | 29.3 | 11.4 | 0.8 | ||||
Additional Information from Prospectus (click here)
Company Background
APAC Realty Limited is a leading real estate services provider which operates a market-leading real estate brokerage in Singapore under the ERA brand. The company holds the exclusive ERA regional master franchise rights for 17 countries in the Asia-Pacific region and is a member of the ERA global franchise network.
Business Overview – 3 Segments
- Real Estate Brokerage Services – Providing brokerage service for (a) resale and rental of residential, commercial and industrial properties and (b) new home sales.
- Franchise Arrangements – royalties from sub-franchisees in Asia-Pacific region for use of ERA brand
- Training, valuation and other ancillary services – training programmes and courses for real estate agents, property valuation work on behalf of clients, property management services and others.
IPO Details
- Offer price at S$0.66
- 44.1 million vendor shares and 4.8 million new shares (subject to over-allotment option) comprising:
- 44.5 million shares under the placement offer
- 4.4 million shares under the public offer
- Estimated IPO market capitalisation at S$234.4 million (assuming the over-allotment option is not exercised)
Cornerstone Investors
At the same time as but separate from the offering, four Cornerstone Investors have entered into Cornerstone Subscription Agreements with APAC Realty Limited. The Cornerstone Investors are FIL Investment Management (Hong Kong) Limited, Qilin Asset Management Pte. Ltd, Asdew Acquisitions Pte Ltd and Azure Capital Pte Ltd. For more information, please refer to page 146 of the Prospectus.
Over-allotment Option
In connection with the Offering, the company has granted the Sole Issue Manager, Bookrunner and Underwriter an over-allotment option, exercisable by the Stabilising Manager, to subscribe for up to an aggregate of 9.75 million additional shares, solely to cover the over-allotment of shares (if any) subject to any applicable laws and regulations. The over-allotment option may be exercisable in full or in part, on one or more occasions, from the Listing Date until the earlier of
- the date falling 30 days from the Listing Date; or
- the date when the Stabilising Manager has bought an aggregate of 9.75 million shares in undertaking stabilising actions.
