Analysts are divided on Morgan Stanley Private Equity Asia (MSPEA) acquiring 59.8% of Singapore Exchange-listed APAC Realty for $129.5 million, or 61 cents per share, a surprise move announced on April 25.
Shares in APAC Realty closed at 80.5 cents on April 25. Trading of the stock remains halted.
DBS Group Research analyst Ling Lee Keng is maintaining “hold” on APAC Realty, the publicly-listed company that holds regional master franchise rights to realtor ERA. In an April 26 note, Ling is trimming APAC Realty’s target price to 67 cents from 88 cents previously.
“Upon completion of the sale, MSPEA will own 61.1% stake in APAC Realty due to some restructuring to the shareholding structure,” notes Ling.
However, the mandatory general offer (MGO) at 57 cents per share represents a 30% discount to the last traded price, Ling adds.
The offer price, which excludes the 4 cents final distribution per share (DPS) declared in February and goes ex-dividend on April 27, is at a 30.1% discount to the last traded price and 23.4% discount to the average price over the last 12 months.
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Thus, the MGO is unlikely to go through, says Ling. “Given that the offer price is at a steep discount of 30.1% to the last traded price, we believe the MGO is unlikely to be successful. We expect some weakness in share price in the near term.”
Ling says the group is projected to register lower earnings in FY2022 as compared to FY2021, on the back of the cooling measures and rising interest rate environment, coupled with fewer new launches and depleting stockpile.
Meanwhile, RHB Group Research analyst Vijay Natarajan is maintaining “neutral” on APAC Realty, with an unchanged target price of 75 cents.
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Natarajan calls the offer “opportunistic”. “We believe the offer price is low and significantly undervalues APAC Realty’s long-term potential. The move comes amidst the latest round of cooling measures that is impacting sales volumes with an expected 20-30% decline in overall transaction volumes this year. However, we note that the underlying Singapore property market fundamentals remain robust and well supported by healthy GDP growth and strong household balance sheets.”
The 59.8% shares are to be acquired from Asia Pacific Realty Holdings, an entity controlled by the Northstar Group, a Singapore headquartered private equity firm.
Natarajan adds: “In our view, Northstar’s exit, which comes after more than eight years of initial investment, is possibly to redeploy the proceeds into other market opportunities.”
That said, Natarajan points to APAC Realty’s “attractive” 6% yield and net cash position. “We believe downside risks to share price are limited by APAC Realty’s attractive dividend potential, asset-light business model and net cash position, which puts the company in a good position to ride out any near-term volatilities. Management has also set a target to increase its agent count to 10,840 by 2025 — a 10% CAGR growth — along with improving its technology capabilities.”
CGS-CIMB Research analyst Lock Mun Yee is keeping her “add” call on APAC Realty, with an unchanged target price of 93 cents, the highest among the analysts here.
“While its near-term share price performance could be affected by the proposed offer price, we believe this would also set a support level for APAC Realty’s share price,” writes Lock in an April 25 note.
Lock thinks there is potential for stronger growth through MSPEA. “MSPEA, with its expertise in investing in highly structured minority investments and control buyouts in growth-oriented companies in Asia, could potentially further build and support APAC Realty’s growth by leveraging on their global network and experience in growing businesses across Asia.”
Management of APAC Realty, including executive chairman Jack Chua, key executive officer Eugene Lim and chief financial officer Poh Chee Yong have provided an irrevocable undertaking to the offeror not to tender their shares in acceptance of the offer or to dispose of their shares.
Photo: Albert Chua/The Edge Singapore
