Morgan Stanley’s offer ‘opportunistic’, ‘significantly undervalues’ APAC Realty

Analysts are divided on Morgan Stanley Private Equity Asia (MSPEA) acquiring 59.8% of APAC Realty for $129.5 million from Northstar Group. The transacted price of 61 cents per share is a significant discount off the property agency’s last traded price of 80.5 cents.

DBS Group Research analyst Ling Lee Keng is maintaining her “hold” call on APAC Realty, which holds regional master franchise rights to realtor ERA, but with a reduced target price of 67 cents from 88 cents previously.

As a result of the change of ownership from Northstar to MSPEA, the latter is obliged to make a general offer to the remaining shareholders of APAC Realty.

The offer price is set at 57 cents, which takes into account the four cents dividend APAC Realty shareholders will receive but not MSPEA.

Given the hefty discount of 30.1% discount to the last traded price and 23.4% discount to the average price over the last 12 months, the general offer is unlikely to go through, says Ling.

However, she expects some weakness in share price in the near term, given how APAC Realty is seen to report softer FY2022 ending December earnings over 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 believes that Northstar, which has held on to its stake in APAC Realty for more than eight years, is cashing out so that it can redeploy its proceeds elsewhere.

He calls the offer price “opportunistic” as it “significantly undervalues APAC Realty’s long-term potential”. While he expects sales volumes to dip by up to 30% this year, “the underlying Singapore property market fundamentals remain robust and well supported by healthy GDP growth and strong household balance sheets.”

He is keeping his “neutral” call and 75 cents price target on the stock, as he sees limited downside risks, given how the stock is giving an “attractive” 6% yield and has a net cash position that let it 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,” adds Natarajan.

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,” she writes in her 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.”

Northstar’s stake in APAC Realty was held jointly by an entity called Asia Pacific Realty Holdings, whose other shareholders include Jack Chua, APAC Realty’s executive chairman; CEO Marcus Chu; and deputy CEO Doris Ong. — Jovi Ho