APAC Realty - RHB Invest 2018-02-26: A Promising Start To 2018

APAC Realty - RHB Invest 2018-02-26: A Promising Start To 2018 APAC REALTY LIMITED CLN.SI

APAC Realty - A Promising Start To 2018

  • APAC Realty’s FY17 net profit comfortably sailed past ours and consensus estimates. It also managed to gain overall market share despite increasing competition and a slight reduction in agent count. 
  • 2018 outlook looks promising with the company already securing 20 new launches (11,268 units) until 9M18, higher than the total units clinched last year. Resale volumes are also expected to benefit from higher new launch prices. 
  • Dividends came in higher than expected with a 90% payout ratio (guidance: 50%). 
  • Maintain BUY as we raise our Target Price to SGD1.35 (from SGD1.20, 23% upside).

Strengthening its Singapore (SG) market leadership position. 

  • Overall SG residential market transaction value in 2017 increased 35%YoY to SGD 61.5bn, on the back of improving market sentiment. More importantly APAC Realty’s real estate services brand ERA gained overall market share (+0.4ppt) to 37.9%.
  • We are heartened to see the market share growth, which came in despite growing competition and a slight reduction in agent count.

Strong project pipeline for 2018. 

  • ERA has secured agent role for about 20 new launches (11,269 units) up to 9M18, higher than the total number of units secured for last year. We expect more projects to be added to pipeline in 4Q18 as most of the en-bloc projects sold recently should be ready by then. The higher expected new launch prices are also expected to boost secondary transaction volumes as more investors and buyers hunt for bargain purchases.
  • The Housing Development Board (HDB) resale market is expected to remain buoyant on the back of the recent increase in proximity housing grants.

Expansion plans on track. 

  • Management is actively looking into the Indonesian market to expand and deepen its presence. This could be via acquisition of its existing franchise or entering into sub-franchise agreements. 
  • APAC Realty also plans to acquire its own office building in Singapore to consolidate its business and save on rental expenses. Other expansion plans include acquisition of other real-estate support service business and franchise expansions which would add more stability to its stable non-recurring income stream.

An attractive 4.6% yield, room for more. 

  • Management would consider raising future dividend payout ratio (current guidance: 50%) if it does not find suitable avenues to deploy its cash. 
  • APAC Realty is currently in a net cash position of SGD62m. We have conservatively raised our future dividend payout ratio to 60% from 50%, translating into an attractive yield of 4.6% for 2018.

Our Top real estate mid-cap Pick. 

  • We have revised higher our FY18F-19F earnings by 7% and 8% respectively by adjusting higher our primary and resale volume assumptions. Our higher SGD1.35 Target Price is based on a DCF valuation (WACC: 8%, TG: 0%). 
  • Valuation remains attractive with APAC Realty trading at 13x FY18F P/E, a > 10% discount to comparable global peers. Additionally, it also offers an attractive 4.6% yield. 
  • Upside potential comes from acquisitions or expansion of business which have not been factored in. Key risks are increasing competition, disruption from technology players, ability to retain key personnel, and concentration risk (earnings) on the local market.

Shekhar Jaiswal RHB Invest | http://www.rhbinvest.com.sg/ 2018-02-26
RHB Invest SGX Stock Analyst Report BUY Maintain BUY 1.35 Up 1.200