APAC Realty - RHB Invest 2017-12-19: Riding The Property Boom

APAC REALTY LIMITED CLN.SI

APAC Realty - Riding The Property Boom

APAC Realty offers the best proxy for investors looking for a direct exposure to the strong residential buying momentum in Singapore. Its brokerage service, operating under the ERA brand, is a residential segment market leader.
Steady growth is also expected from its non- brokerage segment (franchise, training, valuation).
Overall, we expect net profit to increase by 14% in FY18F, after a 54% surge in 2017. The stock also offers an attractive yield of 4.5%.
Maintain BUY with a SGD1.20 TP (39% upside).

Potential upside could come from an expansion of its business in overseas markets.

APAC Realty provides real estate brokerage services in Singapore under the ERA brand. The group also has exclusive regional master franchise rights in 17 countries in the Asia-Pacific region for ERA Realty Network Pte Ltd (ERA Realty).
Besides brokerage services, it also derives revenue from franchise, training, valuation and other ancillary services.

While YTD-October, Singapore’s primary home – excluding executive condominiums (ECs) – and secondary sales have increased by 45% and 67% YoY, the Property Price Index was up by only 0.3%.
For FY18, we expect a flat primary sales and 12% increase in secondary sales volume while prices are expected to recover by 3-7%. While real estate developers require both volume and price recovery for margins expansion, real estate agency commissions are driven purely by volume growth. Thus, we believe APAC Realty is a better way to play the strong buying momentum.

The group’s market share, as a percentage of total transactions, has been steadily increasing to 37.5% in 2016 from 25.7% in 2012. A key contributor to growth has been the company’s project marketing business – the outlook for this segment seems bright, with ERA Realty already securing 10 projects for launch in 2018 of c.10,000 units. This is more 2x the 4,800 units from eight projects in 9M17.
As at 3Q17, the group has the second-largest agent network, with a total of 6,285 agents, ie c.21% of the total. Singapore accounted for bulk 99.9% of revenue in FY16.

APAC Realty plans to expand and deepen its presence in key markets in the Asia-Pacific region, either by setting up brokerage offices, entering into sub-franchise arrangements with local operators or acquiring an existing agent network.
Key target markets in the near-term include China and Indonesia. We expect management to expand its presence at least in one overseas market in 2018 which should further boost earnings.
As at 9M17, the company is in a strong net-cash position of SGD 48m.

Our SGD1.20 TP is based on a DCF valuation (WACC: - 8%, TG: -0%) and translates into 15x FY18F P/E, a 15% discount to comparable global peers’ forward P/E.
Key risks are increasing competition, disruption from technology players, ability to retain key personnel, and concentration risk (earnings) on the local market.

Vijay Natarajan RHB Invest | http://www.rhbinvest.com.sg/ 2017-12-19

RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.200 Same 1.200