Reply to @KennyChia : I agree with Kenny's thinking. Due to unique characteristics of the consideration for assets for Propnex and APAC Realty such as the gross proceeds from IPO not added in for former and presence of sizeable intangible assets in goodwill for latter, I think it is not very fair to compare gross profitability. Instead gross and operating margins are possible measures. Return on equity (assuming both of them have similar financial leverage) and return on invested capital could also be used.
Thanks for this, I liked the writeup... well, most of it, except the conclusions, cos I'm just newly vested with a tiny position (40,000 shares) in APAC at $0.6.
I'd point out that your table that shows a sharp drop in transactions the MONTH after the announcement of previous cooling measures actually supports RHB's assertion that overall, transactions are only expected to drop 10% (thereabouts)
In fact, in that same chart, the month following the sharp drop, shows a sharp rebound.
Full year wise, the drop in transactions isn't as bad as you projected.
1 of the main reasons for this that your article didn't mention, is that in the new launches, the developers have to offload their units within 5 years or face big fines. This 5 year period includes the time to construct, develop and launch and sell completely.
The fines are proportionate to the number of unsold units within the development, and getting fined for a single unit would easily wipe out the profits for another sold unit.... and more.
So developers are loathe to incur these fees, and the loophole of selling to related shell companies set up by parts of the management team has been closed with more disincentives
Hence, developers would be more inclined to either offer huge discounts for unsold units, and/or raise the commission payable to incentivize agents.
Think of it as such: the developers HAVE to move units. They simply have to. Holding on to any unit past the 5 yr mark (and again, mind u, the clock doesn't only start clicking after completion of construction...), is not a viable option.
Of all these units that the developers are going to launch....... someone has to move these units.
APAC dominates the new launches, I can't rem the exact figures right now, but they win even Propnex in the "new launches" section.
Since there's no cost to the agents if units are not moved... the developers are the ones who have a deadline and will cut prices to help move units.
Since most projects are launched early (before construction), APAC comes in right at the start of this chain of events.
1 other logical point: I think it is obvious that it is not the government's intention to crash the property market. They would want to cap prices from running away like what's happening in HK, and they would want to make sure owners are prudent and won't be wiped out when markets turn.
So I think the markets have over reacted here, as it often is the case when something as emotional as property dominates the media headlines.
If we have a 50% drop in transactions after this round of measures, and prices drop 20% from here, you can be sure that the gov would lift or lessen some of these measures.
(As per the previous episode of reducing the SSD's time period from 4 years to 3 years)
But Propnex gross profit margin seems higher. Which somehow explains why its trading many more X PE as compared to APAC.
Reply to @KennyChia : I agree with Kenny's thinking. Due to unique characteristics of the consideration for assets for Propnex and APAC Realty such as the gross proceeds from IPO not added in for former and presence of sizeable intangible assets in goodwill for latter, I think it is not very fair to compare gross profitability. Instead gross and operating margins are possible measures. Return on equity (assuming both of them have similar financial leverage) and return on invested capital could also be used.
do you have the number of new launches developers outsourced to Propnex versus Apac to get a feel of who is dominating the market for new launches.
Reply to @wil168 : Apac abt 20 if I am not wrong
Thanks for this, I liked the writeup... well, most of it, except the conclusions, cos I'm just newly vested with a tiny position (40,000 shares) in APAC at $0.6.
I'd point out that your table that shows a sharp drop in transactions the MONTH after the announcement of previous cooling measures actually supports RHB's assertion that overall, transactions are only expected to drop 10% (thereabouts)
In fact, in that same chart, the month following the sharp drop, shows a sharp rebound.
Full year wise, the drop in transactions isn't as bad as you projected.
1 of the main reasons for this that your article didn't mention, is that in the new launches, the developers have to offload their units within 5 years or face big fines. This 5 year period includes the time to construct, develop and launch and sell completely.
The fines are proportionate to the number of unsold units within the development, and getting fined for a single unit would easily wipe out the profits for another sold unit.... and more.
So developers are loathe to incur these fees, and the loophole of selling to related shell companies set up by parts of the management team has been closed with more disincentives
Hence, developers would be more inclined to either offer huge discounts for unsold units, and/or raise the commission payable to incentivize agents.
Think of it as such: the developers HAVE to move units. They simply have to. Holding on to any unit past the 5 yr mark (and again, mind u, the clock doesn't only start clicking after completion of construction...), is not a viable option.
Of all these units that the developers are going to launch....... someone has to move these units.
APAC dominates the new launches, I can't rem the exact figures right now, but they win even Propnex in the "new launches" section.
Since there's no cost to the agents if units are not moved... the developers are the ones who have a deadline and will cut prices to help move units.
Since most projects are launched early (before construction), APAC comes in right at the start of this chain of events.
1 other logical point: I think it is obvious that it is not the government's intention to crash the property market. They would want to cap prices from running away like what's happening in HK, and they would want to make sure owners are prudent and won't be wiped out when markets turn.
So I think the markets have over reacted here, as it often is the case when something as emotional as property dominates the media headlines.
If we have a 50% drop in transactions after this round of measures, and prices drop 20% from here, you can be sure that the gov would lift or lessen some of these measures.
(As per the previous episode of reducing the SSD's time period from 4 years to 3 years)
Reply to @ThumbTackInvestor : Up 10%.
:)