• Wed. Sep 21st, 2022

OYY); APAC Realty (SGX:CLN)

ByWillie M. Evans

Apr 17, 2022


From lucrative cash incentives for hiring, training and development grants, to penalties for change agencies, the recruiting war for real estate agents escalated in late 2021. Amid a booming real estate market Singapore’s largest real estate agencies, PropNex (SGX:OYY) and APAC Realty (SGX:CLN), performed well. In their recent financial announcements, PropNex’s FY2021 net profit soared 109% to S$65.1 million, while APAC Realty’s net income rose 116% to S$35.3. million Singapore dollars.

The two companies, which account for 55% of the total number of real estate sellers in Singapore, represent a significant volume of real estate transactions in Singapore.

In this article, we will look at the two biggest real estate agencies in Singapore and some key information you need to know about them.

Read also : 5 things to know about LNH Limited (SGX: 41O), the property management company behind Work+Store Self-Storage and Coliwoo Co-Living Spaces

Before that, a brief business history on the two companies.

PropNex & APAC Realty (ERA) Business Background

PropNex is Singapore’s leading real estate agency, providing brokerage services; training; property management; and project marketing services for residential, industrial and commercial real estate. Starting as a small Muslim real estate agency, it grew into a partnership of 5 real estate agencies and later merged into a single entity known as Property Network for Excellence or PropNex.

APAC Realty is a real estate service provider in the Asia-Pacific region, offering real estate brokerage; franchise agreement; training, assessment and other ancillary services. It holds ERA regional master franchise rights for 17 countries in the Asia-Pacific region, including Singapore. ERA, known as Electronic Realty Associates, is a global brand present in 33 countries. Similar to how Hanbaobao Pte Ltd holds the franchise rights for McDonald’s restaurants in Singapore, APAC Realty holds the ERA franchise in the Asia Pacific region.

Current financial results for PropNex and APAC Realty

In its latest quarterly report, PropNex announced revenue of S$957.5 million for fiscal year 2021, an increase of 86.5% over last year; APAC Realty did not disappoint either, announcing revenue of S$739.8 million for the 2021 financial year, an 87% increase over the previous year. Both companies benefited from the post-pandemic surge in housing demand, which saw the number of transactions in Singapore’s private residential resale market nearly double from 2020. As incomes soared , profits also increased. PropNex and APAC reported profits for the 2021 financial year of S$65.1 million and S$35.3 million respectively.

The difference in revenue and profit between the 2 companies is mainly due to the fact that PropNex has a larger market share than APAC Realty in the brokerage business segments of private new launches, private resale and resale HDB. PropNex’s larger scale has also allowed it to develop more residential project marketing business, contributing S$216.8 million to its revenue.

Dividends and Payouts for PropNex & APAC Realty

With their record earnings, PropNex and APAC Realty announced eye-watering dividends to reward their investors. PropNex issued a final dividend of 7¢ per share, bringing total 2021 dividends to 12.5¢ per share. Based on the PropNex share price of S$1.84 as of April 16, 2022, this represents a dividend yield of 6.8%, higher than the average Singapore REIT yield of 6.1% or 3. 2% for the Straits Times Index.

APAC Realty declared a final dividend of 4¢ per share, with aggregate dividends for 2021 of 7.5¢ per share. Based on APAC Realty’s stock price of $0.78 on April 16, 2022, that’s a dividend yield of 9.7%.

The payout ratio indicates the percentage of profits paid out to shareholders as dividends and is calculated by dividing the company’s total dividends by its profits. A higher payout ratio is more attractive to investors seeking income-based returns. However, it could also mean that less profit is reinvested in the business and reduce the growth potential of the business.

Here we see that both companies paid out 75-78% of their net income as dividends, but PropNex has, on average, paid out a higher ratio than APAC Realty over the past few years. APAC Realty’s lower payout ratio can be attributed to its 50.4% year-over-year increase in capital spending – to support its overseas expansion into Indonesia, Thailand, Vietnam and Malaysia. By comparison, PropNex’s investments grew by only 13.0%.

Data extracted from Tiger brokers

We will now examine the performance of PropNex and APAC Realty in various financial measures related to growth and profitability. In principle, companies that can increase their sales and profits should expect to see their share price increase. For the 5-year period from 2017 to 2021, PropNex recorded a compound annual growth rate (CAGR) of 31.3% while APAC Realty recorded a CAGR of 20.8%.

The return on equity (ROE) measure, which measures how much a company earns for every dollar invested by its shareholders, is primarily used to assess how well the company’s management manages its shareholders’ money. Here, PropNex achieved an ROE of 61.1% versus 22.4% for APAC Realty.

Invest in technology

Amid the disruptions brought by COVID-19 and changing customer demands, both companies have embraced technology to stay relevant and operational. APAC Realty invests in proprietary real estate technologies such as proptech startup Dots Connected, which owns and operates UrbanZoom, an AI-powered self-assessment real estate platform. APAC Realty has also formed a strategic partnership with Fang.com, allowing the company to list Singapore properties on the popular Chinese real estate portal. The move into the lucrative Chinese market, which is Singapore’s second-largest group of homebuyers, is expected to boost sales for its agents. Other technological innovations include the iERA mobile app, FindPropertyAgent.sg, and robo-advisors. What is the impact of all this? In its annual report, APAC Realty management credits the company’s progress in digitization and IT transformation with improving ERA’s average revenue per trusted advisor from $52,000 to $90,000.

For PropNex, it recently acquired a 70% stake in OVVY, an online marketplace for household services such as air conditioning repair services, to provide value-added services to its customers. PropNex also previously held its own virtual property expo, which attracted more than 30,000 viewers, while continuing to invest heavily in IT-related training for its salespeople.

Geographic expansion

Given Singapore’s limited land space, recently announced property cooling measures and lack of major project launches in 2022, the obvious business sense for a real estate company is to expand overseas. The two firms share this strategy to increase their regional presence. Since 2016, after PropNex first expanded in Indonesia, it entered the markets of Malaysia, Vietnam and Cambodia. By comparison, APAC Realty holds exclusive ERA regional master franchise rights in the Asia-Pacific region, giving it greater reach: from near ASEAN neighbors to Japan and Korea. If we look at the workforce distribution of its sales agents, we can get a clear picture of the geographical footprint of the 2 companies. APAC Realty has 2 main markets: Singapore and Indonesia; while PropNex mainly focuses on Singapore.

As COVID-19 slowly becomes rampant in the Asia-Pacific region and their economies begin to hum again, industry watchers expect real estate transactions to soar due to multiple factors: high liquidity, political favorable government, return of foreign direct investment and prolonged pent-up demand. For both companies, capturing this rebound in property sales could mean another bumper year like what they experienced in Singapore in 2021.

All in all, the 2 real estate titans each have their own unique selling points. It is too early to conclude that a clear market leader has emerged, and it is up to investors to decide which outlook matters most to them when making their investment decisions.

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