At the time of writing, these are the current stock information for Propnex and ERA. They are the 2 largest homegrown Real Estate Agencies that are listed on SGX. Propnex trades under the quote OYY while APAC Realty trades under the quote CLN.

Today, let's take a look at Propnex, a company that caught my eye due to their astonishing Growth, and having little or no debt.

This is largely different from large Property Development companies which takes on loans to finance their business. Real Estate Agencies are less Capital Intensive, which attracted me.

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Propnex IPO

$0.650 on 2 July 2018

Last traded on 12 March 2019 at $0.600
Market Cap : $220m
Dividend yield: $0.035 or 5.83%
Image result for apac realty
APAC Realty (ERA)
$0.660 in Sep 2017

Last traded on 12 March 2019 at $0.67
Market Cap : $227.33
Dividend yield: $0.025 or 7.46% annually

1. Let's take a look at both companies' Revenue Growth

 Revenues from 2015 to 2018


2. Let's take a look at both companies' Profit Growth




Profit from 2015 to 2018 (in millions)



3. Strategies in Fending against Cyclical nature of business, and retaining agents
Propnex has just ventured into the HDB Auction segment. This is something ERA already has since 2015.

Propnex has a great focus on Creative Marketing for property sales. Propnex will seem to have a better online presence, and market themselves better.

ERA has Plush - premium service that will allow its salesforce to engage and service high net-worth individuals across Asia-Pacific.

ERA Realty Network, Singapore’s second biggest real estate agency, has launched an initiative to cater to high net worth clients, named Plush by ERA. Over 100 agents have been handpicked to join this elite team.

Plush will kick off in Singapore, and will eventually be rolled out to the rest of ERA’s network in the Asia Pacific region. After all, Asia Pacific accounted for 31% ($27 trillion) of the world’s richest in 2017, and the forecast is that by 2025, the wealthy individuals in the region will have a total networth above $55 trillion.

4. Both Companies promised to pay out 50% of money made as Dividends annually

5. Propnex vs ERA in attracting Agents
Propnex seems to be able to draw in more agents. This can be seen from their merger with Dennis Wee, where more than 800 agents were absorbed by Propnex.

Propnex has also collaborated with Century 21 allows the latter's salespersons to cross-over to  PropNex Realty, further strengthening the Group’s position as Singapore’s Number 1 largest listed real estate agency currently with 7,513 salespersons (as at 24 February 2019).

Propnex prides itself with the Singature Sales Bootcamps and Leadership Bootcamps, as described by its Director, Kelvin Fong. Propnex seems to be able to tap into Social Media Marketing well given the online presence of PropertyLimBrothers, a division headed by Melvin Lim.

6. Regional reach
Propnex has 7,500 agents largely based locally, while APAC Realty has 17,800 agents across 17 countries in Asia Pacific.

Propnex seems to be new to regional markets. Digging through its SGX announcements (Read more), here are the following findings:

  • In FY 2018, the Group further expanded its overseas operations to Malaysia and Vietnam in March and August, respectively. To date, the Group has approximately 1300 salespersons across its three overseas markets of Indonesia, Malaysia and Vietnam.
  • The Group currently has approximately 1,000 salespersons across 19 offices in Indonesia, 200 salespersons across 3 offices in Malaysia, and an office in Ho Chi Minh City with 100 salespersons.

ERA is definitely far more established in the South-East Asia Market. It has a broader reach, even into Thailand and Indonesia.

  • Feb 2019 - Acquired ERA Indonesia, a property brokerage pioneer in Indonesia with an estimated market share of approximately 10% of Indonesia’s secondary property market and a network of more than 6,900 salespersons across its 103 offices. 
  • Feb 2019 - With a talent pool of close to 400 real estate salespersons, ERA Thailand is the largest home selling network in Thailand focused on key markets such as Bangkok and its suburban areas, the Eastern Economic Corridor, and Southern cities like Had-Yai, Surath-Thani and Krabi.
  • Aug 2018 - Entered in Joint-Venture agreement with two Chinese companies to tap into the robust property market of Hainan province
  • Feb 2018 - Started Cambodia Franchise
  • Mid-2017 - Started ERA Vietnam, which grew rapidly to have 1,300 Salespersons
7. FY2019 outlook

Propnex
In FY 2018, PropNex was involved in 31 project launches in 2018, of which 26 were new launches and 5 were appointed after the initial launch. 

For 2019, PropNex has been appointed for 37 projects to date, with approximately 16,000 units to be launched.

APAC Realty
As of 28 February 2019, ERA has secured marketing agent appointments for 46 quality projects with
close to 20,000 new home units to be launched in FY2019.


8. Let's take a look at their Financials (per FY2018 latest unaudited financial results)

Debt Ratio

Propnex - 0.50
APAC Realty - 0.495

This is interesting given that APAC Realty has 54.6m in Loans & Borrowings as compared to Propnex, which has no Loans.

Propnex has a better cash balance of $75.7m compared to APAC Realty's $43m.

So, why the similar Debt Ratio?

This is because 99.5m sits in APAC Realty's Balance sheet as Intangible Assets. This bumps up its Total Assets Value.

An intangible asset (IA) is an asset that is not physical in nature. Goodwill, brand recognition and intellectual property, such as patents, trademarks and copyrights, are all intangible assets.

Intangible asset is the thing that got Noble Group into hot waters. It has caused a 40% fall in Kraft Heinz recently too. Why? Because it's judgmental accounting.

I have dug into Annual Report 2017 of APAC Realty, and IA stands at $100.4m. Franchise Rights makes up 25.4m and Goodwill makes up 75m of IA amount.



Franchise rights

Franchise rights is held for the exclusive right of use of the brand names being “ERA” and “Coldwell Banker”.

The Group acquired exclusive ERA Regional Master franchise right for certain countries in the Asia Pacific region for an initial term of 30 years from 19 November 1999, which expires in 2029. The Group has the option to renew the regional master franchise agreements for an additional 30-year term upon expiry of the initial term subject to certain conditions. As at 31 December 2017, the carrying amount of the ERA franchise right in Asia Pacific region is $2,811,300 (2016: $3,047,700) and has remaining amortisation period of 12 years (2016: 13 years).

The Group also holds ERA Subfranchise right in Singapore for an initial term of 30 years from 28 June 1990, which expires in 2020. It includes a renewal clause for an additional successive 30 years, which is automatically renewed upon expiry with no additional cost in accordance to the franchise agreement. As at 31 December 2017, the carrying amount of the ERA Singapore Subfranchise right is $22,582,000 (2016: $23,278,000) and has remaining amortisation period of 33 years (2016: 34 years).

In addition, the Group has the Coldwell Banker franchise right for an initial term of 30 years from 16 October 1998, which expires in 2028. The Group has the option to renew the franchise agreements for an additional 30-year term upon expiry of the initial term subject to certain conditions. As at 31 December 2017, the carrying amount of the Coldwell Banker Franchise right is $1,000 (2016: $1,000) and has remaining amortisation period of 11 years (2016: 12 years).


ERA's Intangible Assets (Goodwill):



Propnex's Intangible Asset includes Trademark rights acquired from P&N Holdings and currently stands at $188,000 as at 31st Dec 2019.

Disregarding Intangible Assets, Debt Ratio of APAC Realty will be 0.765.

9. Net Profit Margin

Propnex - 6.09% (Lower because of one-off IPO expenses)
APAC Realty - 6.95%

Also, we see that Propnex Staff costs has increased by 45.7% from 2017 to 2018 by almost $4m. Here is what is gathered from FY 2019 Propnex financials:


10. A Quick look at ROEs

Propnex - 31.2%
APAC Realty - 16.9%
*Figures calculated with Total Shareholder's Equity at end of FY2018 as Propnex just IPO in the previous year.

ROE is considered a measure of how effectively management is using a company’s assets to create profits.

Conclusion

I have remained vested in Propnex at price of $0.600. To many it could be a mistake as it trades at an Average Price of $0.54-$0.55 range.

Main reasons for the buy includes the steady growth in Profits, and potential in the regional markets. APAC Realty has already had a more prominent presence in Regional Markets.

However, I believe that having a lean force in Regional Markets could mean less risk for Propnex too.

Some people has cited that Kelvin Fong leads the largest team within Propnex, with over 3000 salesperson under his Agency. I do not personally think this is an issue as we observe this in other similar industries like Insurance Agencies.

All in all, Propnex seems to be able to master the Singapore market well, as compared to APAC realty. Both are good buys, it depends on what you are looking for.

For now, I am paying for a higher P/E ratio, for the Growth, the leaner Balance sheet with no loans, and for better focus in Singapore Real Estate Market.


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