Understanding a Real Estate Service Provider

Article Highlights

• FY2020 Profit after tax grew by 17.76% year-on-year.

• Recovery in APAC Realty’s ROE in FY2020.

• Improvement in APAC Realty’s Interest Coverage Ratio.

• 25% year-on-year increase in its dividend for FY2020.

APAC Realty Limited (“APAC Realty”) is a leading real estate services provider which provides property brokerage services for primary and secondary home sales, as well as rental of residential, commercial and industrial properties.

APAC Realty holds the exclusive ERA regional master franchise rights for 17 countries in the Asia Pacific. Through its ERA franchisee network, the Group has one of the largest brand footprints in Asia with more than 18,000 salespersons across 646 offices and is one of the largest ERA Member Brokers globally by transaction value.

Evaluating APAC Realty Limited using 4 Financial Metrics

Revenue & Net Profit

For FY2020, APAC Realty’s revenue (Blue Bar) saw growth of 6.66% year-on-year to S$389.42 million. This was mainly due to the increase in brokerage income from resale and rental of properties; partially offset by the decrease in brokerage income from new home sales.

In line with the revenue growth, APAC Realty’s profit after tax (Purple Bar) registered a year-on-year growth of 17.76% to S$16.34 million due to lower operating expenses and income taxes.

On the other hand, investors should take note of the stagnant revenue and declining net profits over the past few years too.

Management Efficiency Ratio

After witnessing a 3-consecutive year of decline in Return on Equity (“ROE”), APAC Realty’s ROE has since recovered to above 10% in FY2020. This was mainly owing to an improvement in profit after tax, given the constant shareholders’ equity over the same period.

In terms of APAC Realty’s Cost of Revenue, it has been on an upward trend since FY2017. For FY2020, its Cost to Revenue stood at 89.26%, 2.16 percentage points higher than in FY2017. This suggests that APAC Realty’s business operations are not operating at an efficient level.

Leverage Ratio

APAC Realty’s balance sheet went into a net debt position since FY2018 after purchasing their new headquarters at Toa Payoh for S$72 million.

APAC Realty’s net debt to equity ratio has been fluctuating for the past years. For FY2018, its ratio stood at 0.10 times and has risen to 0.19 times in FY2019. With the decline in debt level, its ratio improved to 0.13 times in FY2020.

With a higher level of debt and declining profit level, APAC Realty’s interest coverage ratio came under pressure. For FY2017, the ratio stood at 115.78 times and has since declined to just 10.34 times in FY2019. This has since improved to 18.89 times in FY2020, on the back of lower level of debts and higher profit achieved.

Dividend

APAC Realty’s total dividend per share (Green Bar) has been relatively stable across the few financial years. There is one positive exception in FY2018 where its total dividend per share surged 125% year-on-year to 4.5 Singapore cents.

For FY2020, its total dividend per share stood at 2.5 Singapore cents per share, which represents a 25% growth from last year.

APAC Realty’s dividend payout ratio in the past 3 years has hovered around the 50% range, indicating that the management is balancing out between rewarding shareholders and keeping enough profits on hand for business developments.

Conclusion and Prospects

APAC Realty’s revenue and profit after tax have demonstrated steady growth compared to the last year. However, investors will have to be wary of the Group’s declining profits and ROE ratio in the past few years.

In terms of prospects, in addition to enhancing its business operations in Singapore, APAC Realty mentioned that it will continue to focus on its regional presence in ASEAN and will take a long-term approach in its regional expansion strategy.

Finally, the Group will continue to monitor market developments in Indonesia, Thailand, Vietnam and Malaysia given the prevailing Covid-19 pandemic. APAC Realty is cautiously optimistic about the recovery of the respective economies as each country’s vaccination programs are being carried out in 2021.

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