APAC REALTY LIMITED (SGX:CLN)
APAC Realty - Weaker Project Sales
- Decent 3Q18 results despite recent property curbs; expecting weaker 4Q18.
- Slower take-up rate for recent launches; robust pipeline of 27 projects.
- Rising stockpile and potential supply.
- Cut APAC Realty FY19F earnings by 9% on weaker primary sales assumption; maintain HOLD with lower Target Price of S$0.56.
Expect weaker primary project sales ahead.
- In the light of the recent property curbs, we are expecting weaker demand for new project launches. In FY18F, we project a 5% y-o-y decline in transaction value for the primary market, and a steeper 15% drop in FY19F.
- For the secondary market, we expect a 5% drop in FY18F and flat in FY19F. The healthy project pipeline of 27 new project launches in the next one to two years should provide some support.
- Maintain HOLD.
Decent 3Q18 results.
- APAC Realty reported a 18.8% increase in 3Q18 net profit to S$6.5m, on the back of a 8.8% rise in revenue to S$114.8m. Net profit in 9M18 gained 11.8% to S$20.2m, accounted for 86% of our FY18F earnings, above expectations.
Where We Differ: Sales momentum hurt; en bloc activity to wane.
- We are more cautious than street. The uncertainty and expected slowdown in sales velocity in 2H18 and potentially 2019 might lead to developers re-thinking their land-banking strategy or even put a halt to this altogether. The en bloc market could also potentially come to a standstill.
Robust pipeline; rising stockpile and potential oversupply.
- APAC Realty currently has a robust pipeline of 27 new project launches, totaling 12,958 units, vs 25 projects that were already launced this year. The volume of unsold private residential units with planning approval rose to 31,295 (+16% q-o-q).
- Additionally, there is a potential supply of 14,200 units from Government Land Sales (“GLS”) sites and awarded en-bloc sale sites that have yet to be granted planning approval. A large part of this new supply could be made available for sale from next year.
Key Risks to Our View:
- Outlook is dependent on Singapore’s residential property market and macroeconomic conditions.
WHAT’S NEW - Decent 3Q18 results despite recent property curbs
Decent 3Q18 results.
- APAC Realty reported an 18.8% increase in 3Q18 net profit to S$6.5m, on the back of an 8.8% rise in revenue to S$114.8m. Excluding IPO expense of S$1.1m in 3Q17, 3Q18 net profit was flat. Net margin was lower at 5.7%, vs 6.3% in 2Q18 and 5.2% in 3Q17.
- For the 9-mth period, total revenue increased 26.3% to S$342.1m, mainly due to the increase in brokerage income from the resale and rental of properties, and new home sales. This was achieved against a backdrop of moderating growth in the Singapore real estate sector in 3Q18, in light of the recent property curbs.
- Net profit gained 11.8% to S$20.2m, accounted for 86% of our FY18F earnings, above expectations.
Rising contribution from secondary market.
- In terms of segmental revenue for the 9-mth period, private residential sale from the primary market accounts for 25% of total revenue, down from 28% in FY17. Secondary market increased to 56% from 53% in FY17, and the balance 19% (19% in FY17) from HDB resales.
- For property market transactions as a whole, 6,959 units (- 20% y-o-y) worth S$9.8bn were transacted in the primary market for the 9-mth period while the resale market saw a total of 11,320 units (+12% y-o-y) worth S$22.6m sold.
Weaker property market in 3Q18 but APAC recorded 35.9% y-o-y increase in new home sales in 9M18.
- According to data from Urban Redevelopment Authority (URA), the private residential price index grew at a more subdued pace of 0.5% in 3Q18, compared to 3.4% in 2Q18 and 3.9% in 1Q18.
- Developers sold 8,066 new private residential units (including executive condominiums) in 9M18, a decline of 34.2% from 12,267 units sold in 9M17. Despite the weaker market sentiment, ERA recorded new home sales of S$104.5m in 9M18, an increase of 35.9% y-o-y.
Slower take-up rate for recent launches; robust pipeline of 27 projects.
- APAC Realty saw slower take-up rate for recent launches, post the property cooling measures. Average take-up rate for the four sales launches – Arena Residences, Belgravia Green, Whistler Grand and Kent Ridge Hill Residences, is about 30%, vs c.40% take-up in 1H18.
- APAC Realty currently has a robust pipeline of 27 new project launches, totaling 12,958 units in Singapore. Some of the upcoming project launches in 4Q18, for which ERA is appointed as the marketing agency, are Parc Esta and Uptown @ Farrer.
Rising stockpile and potential oversupply.
- The volume of unsold private residential units with planning approval rose to 31,295 (including executive condominiums) (+16% q-o-q), from 26,961 in the previous quarter. This was mainly due to a fresh round of property cooling measures introduced in July and the traditional lull period during the seventh lunar month.
- Additionally, there is a potential supply of 14,200 units (including executive condominiums) from Government Land Sales (“GLS”) sites and awarded en-bloc sale sites that have yet to be granted planning approval. A large part of this new supply could be made available for sale next year, and will be completed from 2022 onwards.
Growing agent force.
- With the acquisition of CBRE Realty and HSR International Realtors expected to be completed by end of November, ERA’s agent strength will be increased by about 450 agents to 6,550 agents, reinforcing its position as one of the market leaders.
Earnings & Recommendation
Cut FY19F earnings by 9%; maintain HOLD with lower Target Price of S$0.56.
- No change in assumption of a 5% y-o-y decline in transaction value for the private residential primary and secondary market in FY18F.
- In FY19F, we have lowered our assumption for the primary market segment to drop by 15% y-o-y, down from a 5% decline previously. For the secondary market and the HDB segment, we have maintained our flat growth assumption.
- In FY20F, we assumed a 5% increase in transaction value for the primary and HDB market and flat for the secondary market. We expect more HDB upgraders to enter the private property market in 2020, after the 5-year minimum occupation period.
- As such, earnings for FY19F is reduced by 9%.
- We maintain our earnings forecast for FY18F despite 9M18 earnings accounting for 86% of our forecast. We are expecting a weaker 4Q18 on the back of the weak market sentiment and higher expenses due to the consolidation of CBRE and HSR into the group.
- Our target price is lowered to S$0.56 (previous S$0.62), pegged to -1SD of 10x FY19F earnings. Maintain HOLD.
Lee Keng LING
DBS Group Research
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Derek TAN
DBS Research
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https://www.dbsvickers.com/
2018-11-13
SGX Stock
Analyst Report
0.56
DOWN
0.620
