SINGAPORE (Feb 12): APAC Realty, the real estate agency, is deepening its South-East Asian presence with the acquisition of the ERA master franchise operations for Indonesia and Thailand.
The acquisitions are in line with its long-term plan to diversify its earnings base amid challenges in the local residential market.
ERA Indonesia is the largest brokerage agency in the country with more than 6,900 agents and 10% market share in the secondary property market.
APAC Realty will pay $9.43 million for ERA Indonesia and also extend a convertible loan of $4.42 million. The consideration also includes a 4,664 sf office space in Tanah Abang.
In a Feb 12 report, RHB Research analyst Vijay Natarajan says, “While the acquisitions seem expensive at ~19x adjusted historical P/E (excluding office property), management noted that it sees strong business growth opportunities in this market and expects to more than double the net profit in the next one to two years.”
Key part of APAC Realty’s growth plan is the entry into the project marketing segment given ERA Indonesia has formed an agreement with developer PT Intiland Development to be one of the latter’s lead agencies for future projects.
According to Natarajan, ERA Indonesia was also appointed as the lead marketing agent for the first phase of 57 Promenade in Jakarta’s CBD.
APAC Realty also has plans to list its Indonesian entity separately over the next 9-12 months while retaining a majority stake in the entity.
Overall, APAC Realty’s management expects a healthy recovery of the Indonesia property market after mid-2019, following the presidential election, given the opening up of property purchases to foreigners also on the cards.
In terms of commission structure, APAC Realty has guided that agent commission for new launches in Indonesia is about 3.5%, higher than Singapore’s 1.5%-2%.
Meanwhile, ERA Thailand has been operating since 1993 with more than 400 agents, and has a track record of closing roughly 1,000 transactions yearly.
Management noted ERA Thailand is currently profitable. As the current franchise term was set to expire, APAC Realty chose to take an 80% stake in the entity at no additional cost, instead of extending the franchise term.
Similar to Indonesia, management wants to break into project launches in Thailand, which are mostly done by the developers themselves.
Currently, ERA Singapore is involved in marketing a few of Thai developer Sansiri’s projects locally. Management plans to extend this relationship by helping sell Sansiri’s projects locally, and also to other regional clients. APAC Realty noted that typical agent commission for new launches is 4%, and for secondary market – 3% seller commission and 1-2% buyer commission.
“Maintain ‘buy’ and target price of 72 cents...We have not made any earnings changes pending more details,” says Natarajan.
Despite the muted property market sentiment in Singapore, the analyst expects property volume to hold up on strong pipeline of new launches and liquidity.
“Valuations are relatively cheap in our view, with the stock trading ~8x FY19F P/E, and offering 8% dividend yield,” adds Natarajan.
As at 11.36am, shares in APAC Realty are trading flat at 50 cents or 5 times FY20F earnings.
