Singaporeans’ love affair with property has been well-documented.
High demand for homes for staying and for investments has pushed HDB resale prices for the 31st straight month in January this year.
As Singapore also faces a limited supply of homes, rental rates here are poised to catch up with Hong Kong, with analysts projecting that rates could rise another 10% to 15% in 2023.
If you want to benefit from this long-term trend, you should look at parking some money in real estate through the intermediaries – the real estate brokerages.
These brokerages have benefitted from this trend as they deploy their salespeople to handle a myriad of property transactions.
We decided to dig deeper into PropNex (SGX: OYY) and APAC Realty (SGX: CLN) to better understand which makes the better investment.
Number of salespeople
The number of salespeople a brokerage has is a good reflection of its reach.
With a larger sales force, the business can help with a wider range of queries and provide a myriad of services to increase customer loyalty.
In this regard, PropNex wins as it has close to 12,000 salespeople while APAC Realty has just 8,400 in Singapore.
Investors should note, however, that APAC Realty has 21,900 salespeople spread out across 646 offices, making it the larger of the two.
Winner: APAC Realty
Financials
Moving on to the financials portion, we compared the latest 2022 earnings for both property brokerages.
PropNex saw its revenue rise by 7.5% year on year to S$1 billion while net profit inched up 3.9% year on year to S$62.4 million.
APAC Realty, however, suffered a 4.7% year on year dip in revenue to S$705 million while net profit plunged 25% year on year to S$26.6 million.
PropNex also registered a higher net margin of 6.1% compared to APAC Realty’s 3.8%.
Winner: PropNex
Balance sheet
With the Singapore government’s recent property cooling measures, the brokerages need to ensure they maintain a good cash buffer.
Depending on the severity of each measure, the industry may see a cooling-off period where sales plunge and people hold back from committing as they adopt a wait-and-see attitude and reassess their finances.
PropNex’s balance sheet has zero debt along with nearly S$139 million of cash.
APAC Realty, however, only held S$49.3 million in cash and had total debt of close to S$46 million, resulting in a net cash position of just S$3.3 million.
Winner: PropNex
Cash flow statement
Cash is the lifeblood of any business, and a business that generates healthy free cash flow keeps it in better shape to weather any economic challenges.
PropNex generated an operating cash inflow of S$51.4 million but only incurred less than S$400,000 in capital expenditure (capex), giving it a free cash flow of S$51 million.
APAC Realty also generated free cash flow but the amount was a tad lower at S$33.1 million.
When compared to their respective revenue levels, PropNex had a 5% free cash flow margin while APAC Realty’s margin was slightly lower at 4.7%.
Winner: PropNex
Dividend yield
Income investors will be very interested in this section as we review each company’s dividend yield.
Both PropNex and APAC Realty pay half-yearly dividends, with the former paying S$0.14 per share for 2022 and the latter doling out S$0.0625.
APAC Realty has the upper hand here as its trailing dividend yield is 10.1% versus 7.1% for PropNex.
What’s more, APAC Realty also paid out a special interim dividend of S$0.03 in 2021.
However, APAC Realty cut its final dividend for 2022 from S$0.04 to S$0.0275, and the group may reduce its dividend further this year as its net profit was reduced by a quarter.
PropNex, on the other hand, raised its final dividend from S$0.07 in 2021 to S$0.08 last year.
A rising dividend is always preferred as it signals that the business is improving.
Coupled with both companies’ 2022 earnings, it seems safe to assume that the dividend yield could improve for PropNex and fall for APAC Realty.
Winner: PropNex
Valuation
Finally, we had a quick look at the valuation for each company based on the price-earnings ratio.
APAC Realty is trading more cheaply but the reason could be because it has a lower net margin and also a slightly lower free cash flow margin as compared to PropNex.
Hence, the discount may be justified for APAC Realty’s case unless it can improve its financial numbers.
Winner: APAC Realty
Get Smart: PropNex is in a better position
By now, you should realise that PropNex is a better choice for a property brokerage.
The group has posted a healthy set of financials for 2022 and also has no debt on its balance sheet, putting it in a good position to weather the surge in interest rates.
It had also raised its final dividend and has a larger team of salespeople in Singapore.
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Disclosure: Royston Yang does not own shares in any of the companies mentioned.
