APAC Realty - DBS Research 2018-03-19: Strong Property Sales Momentum

APAC Realty - DBS Vickers 2018-03-19: Strong Property Sales Momentum APAC REALTY LIMITED CLN.SI

APAC Realty - Strong Property Sales Momentum

  • Strong project pipeline with 20 new launches secured till 3Q18 provides conducive backdrop.
  • Raised transaction value to S$52.2bn (+15% y-o-y) for FY18F and S$57.4bn (+10% y-o-y) for FY19F.
  • Revised earnings up by 9-11% for FY18F-19F.
  • Maintain BUY with higher Target Price of S$1.42.



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 16% 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 4.3% based on 60% payout is attractive.


Where We Differ:


Sizeable scale and leading market share a winning formula in our view. 

  • ERA’s strong market share of c.38% in terms of transaction value in the Singapore residential market allows the agency to reach out to a diverse base of potential property buyers. 
  • 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 for the private residential market upwards to S$52.2bn, +15% y-o-y growth for FY18F (previously +10%), and to S$57.4bn for FY19F, a 10% growth, up from 5%. Coupled with the assumption of a slight improvement in margins, on the back of more new launches that command higher commission as compared to resale units, and the scalability of the business, we are expecting earnings growth of 24% for FY18F and 9% for FY19F. 
  • Given the upturn in buyer sentiment, partly driven by the strong collective sales, 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


Raised Target Price to S$1.42 on blended DCF and PE valuation methodology. 

  • Our Target Price of S$1.42 is based on the average of discounted cash flow (DCF) valuation and PE valuation that is pegged to peers’ historical average of 15x FY18F earnings.


Share Price Drivers: 

  • We believe that APAC is largely viewed by the market as a proxy to Singapore’s private and HDB residential transaction volumes and values. As such, any newsflow in relation to the Singapore residential market should drive APAC’s share price.


Key Risks: 

  • APAC is highly dependent on Singapore’s residential property market and macroeconomic conditions. Any change in government policies might affect the property market, which will in turn affect APAC. For example, residential transaction volumes and values suffered a sharp decline in 2014 due to the cumulative effect of various measures introduced by the government. 
  • In the longer term, the real estate brokerage industry may also be disrupted by technology with increasing adoption of websites that facilitate private sales.




Lee Keng LING DBS Vickers | Derek TAN DBS Vickers | http://www.dbsvickers.com/ 2018-03-19
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.42 Up 1.250



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