APAC Realty - DBS Research 2018-02-26: Riding On Property Sector Uptrend

APAC Realty - DBS Vickers 2018-02-26: Riding On Property Sector Uptrend APAC REALTY LIMITED CLN.SI

APAC Realty - Riding On Property Sector Uptrend

  • Impressive FY17 results, net profit surged 63% y-o-y; above expectations; DPS of 2cts declared.
  • ERA outperformed residential property market.
  • Robust project pipeline; projects secured to date is double that in the whole of 2017.
  • Raised earnings by 12% for FY18F and 8% for FY19F; maintain BUY with higher $1.25 Target Price.



Purest proxy to Singapore residential volumes. 

  • ERA Realty, a wholly-owned subsidiary of APAC Realty, is one of Singapore’s largest real estate agencies with approximately 5,882 registered agents, as at January 2018. 
  • We believe that APAC Realty remains poised to deliver a robust 10% 2-year CAGR in EPS on the back of a turn in the Singapore residential market, which is at the cusp of a multi-year recovery. 
  • The projected FY18F dividend yield of 4.5% based on 60% payout is attractive.


Where We Differ:


Industry-leading Target Price and estimates; sizeable scale and leading market share a winning formula in our view. 

  • Having a strong track record and a sizeable agent base is a key winning formula for ERA as it allows the agency to reach out to a diverse base of potential property buyers. 
  • In 2017, ERA’s market share grew to c.38% in terms of transaction value in the Singapore residential market, up from approximately 32% in 2015 and 29% in 2014. 
  • ERA has a pipeline of more than c.11,000 units across 20 new project launches till 3Q18, which is significantly higher than the units secured in the whole of 2017. Successful sell-through rates for the various projects will set the stage for another record year in FY18F.

Stronger-than-projected volumes could surprise on the upside. 

  • We revised our industry transaction value upwards to S$50bn, representing 10% y-o-y growth for FY18F, vs our previous assumption of 5% growth, while keeping our FY19 growth projection at 5%. Coupled with the assumption of a slight improvement in margins, we are expecting earnings growth of 14% for FY18F and 7% for FY19F. 
  • Given the upturn in buyer sentiment driving demand for homes, we believe that the opportunity to surprise on the upside is high. Every S$1bn in transaction value adds 2% to our EPS and Target Price estimates.


Valuation


Blended DCF and PE valuation methodology. 

  • Our Target Price of S$1.25 is based on the average of discounted cash flow (DCF) valuation (assuming 8.5% weighted average cost of capital, 0% terminal growth), and PE valuation that is pegged to peers’ historical average of 15x FY18F earnings.



WHAT’S NEW - FY17 results outperformed residential property market 


Results highlight 


Impressive first full-year results post IPO, with FY17 net profit surging by 63% y-o-y to S$25.9m - above expectations: 

  • The strong improvement in net profit was achieved on the back of a 39.2% y-o-y increase in revenue for FY17. The increase in revenue is largely due to the improvement in brokerage income. APAC benefited from a recovery in the Singapore residential market where there was a substantial increase in transaction volume in the private primary and secondary market. The private residential price index also registered its first increase of 1.1% for the whole of 2017, after 3 years of declines.
  • A final dividend of 2 cents per share was declared for FY17. This works out to c. 90% of 4Q17 net profit. APAC has guided that it is committed to pay at least 50% of FY18F profit as dividend. Assuming a payout ratio of 60% for FY18F, dividend yield is attractive at 4.5%.

ERA outperformed the residential property market. 

  • The overall property transaction value for the whole market hit S$45.4 bn (+53% y-o-y) in FY17 and ERA outperformed the industry with a 63% jump in net profit in FY17. 
  • In terms of market share, ERA accounts for 37.9% of the total market transaction value, slightly higher than the 37.5% market share in FY16. The market share for ERA in terms of number of agents remains the same at 21% with 5,882 agents as at January 2018.

Robust project pipeline; projects secured to date with c.11,000 units, which is double that of 2017: 

  • To date, ERA has already secured more than 20 projects to be launched in 2018 with about 11,000 residential units available for sale.
  • This is double the 4,800 units (from 8 projects) launched by ERA in 2017.


Earnings and Recommendation 


Raised earnings by 12%/8% for FY18F/FY19F. 

  • Our initial estimates were conservative as transaction value continues to power on. FY17 data were 13% higher than our forecast. We revised our industry transaction value upwards to S$50bn, representing 10% y-o-y growth for FY18F, vs our previous assumption of 5% growth, while keeping our FY19 growth estimate at 5%. 
  • Coupled with the assumption of a slight improvement in margins, we raised FY18F net profit by 12% and 8% for FY19F. 
  • Maintain BUY with a higher Target Price of S$1.25 (prev S$1.12), based on blended DCF and PE valuation that is pegged to the peers’ historical average of 15x FY18F earnings.



Derek TAN DBS Vickers | Rachel TAN DBS Vickers | http://www.dbsvickers.com/ 2018-02-26
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.25 Up 1.120



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