APAC Realty (SGX:CLN) VS Propnex (SGX:OYY)

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The brokerage market in Singapore is dominated by two companies, Propnex which owns Propnex Realty, and APAC Realty which owns ERA Realty in Singapore. Let’s take a look at both companies’ metrics and assess whether they are good investments.  

Business Model

The APAC Realty Group operates three main business segments – real estate brokerage services; franchise arrangements; and training, valuation and other ancillary services. They hold the exclusive ERA regional master franchise for 17 countries in Asia pacific, but they derive most of their revenue from brokerage activities in Singapore. In Singapore, APAC Realty’s real estate brokerage services are operated by its wholly owned subsidiary ERA Realty Network Pte Ltd. 

Propnex’s key business segments include real estate brokerage, training, property management and real estate consultancy services,very similar to APAC Realty. Propnex has substantial market share in the residential segments of new project launches. They also implement a franchise concept overseas, and have franchised branches in Malaysia, Vietnam, and Indonesia. However unlike APAC Realty which acquired its master franchise rights from the Realogy Group, Propnex fully owns it’s brand name. They derive most of their revenue from brokerage activities in Singapore as well.

ERA Realty which is a wholly owned subsidiary of APAC Realty, is the second largest brokerage group in Singapore with more than 7,600 agents. They own significant shares of ERA Vietnam (38% stake), ERA Malaysia and ERA Thailand (both 49% stake). They also have franchises throughout most of Asia Pacific but they mostly only contribute in terms of royalties which are small amounts.

Propnex is the largest brokerage group in Singapore with more than 9,000 agents. They also hold 25% stake in PropNex Realty Vietnam, and 20% stake in PropNex Realty Sdn. Bhd in Malaysia. 

Track Record

For their Group revenues,  we can see that Propnex started from a lower base and caught up with APAC Realty over the years. Propnex’s full year revenue has reached a new high in 2020, while APAC Realty’s full year revenue has been stagnating for the past couple years.

It’s the same story for their net profit after tax. Point to note would be that APAC Realty actually purchased their Toa Payoh property to use as their HQ in June 2018, and are therefore obliged to slowly pay down their property loan over the years, by setting aside an amount of S$2.9m annually. At the moment, cash-on-hand for APAC Realty and Propnex are $35m and $118m respectively. Propnex has an ROE of 35% at the moment, while APAC Realty has an ROE of close to 11%. This shows that Propnex is more efficient at generating profits for investors than APAC Realty.

Market Share

Based on their annual reports for FY2020, APAC Realty managed to capture 33.3% of the market share based on transaction values, while Propnex being the market leader, took up 48.8% of private new launches, 48.3% of private resale transactions, and 57.3% of HDB resale transactions. These metrics seem reasonable, considering that Propnex and APAC Realty are the largest and second-largest real estate agencies in Singapore today.

Technology

Both Companies are embracing technology in order to adapt to changing demands from customers and to stay relevant and operational. APAC Realty invests in proprietary real estate technologies such as Dots Connected which owns and operates UrbanZoom, SoReal Prop, Turning-Point and Fang. Propnex recently acquired a 70% stake in OVVY, an online sales platform for household services. Most of the agents from both agencies also advertise and broker properties on common social platforms such as Youtube, Facebook, and Carousell.

Dividends

Both APAC Realty and Propnex have declared a dividend payout ratio of 50% of profits. Based on the recent payout for 2020, APAC Realty has paid out 54.3% of profits for 2020, while Propnex paid out 70% of their profits for the year. This translates into a twelve trailing months dividend yield of 3.04% for Propnex based on their share price of S$1.81, and 3.36% for APAC Realty based on their share price of S$0.745.

Valuation

If we look at their current share prices, APAC Realty is trading at a price of S$0.745, reflecting a PE ratio of 16x, and PS ratio of 0.67. Propnex is trading at a price of S$1.81, with a PE ratio of 18x, and PS ratio of 1.11. We can see here that APAC Realty is trading at cheaper valuations compared to Propnex. However, in terms of performance, Propnex is doing much better than APAC Realty in terms of cash generation and Return On Equity. To conclude, Investors should buy into APAC Realty if they are looking for undervalued plays, while Propnex would attract investors who are looking for quality above all else.

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