APAC Realty - RHB Invest 2019-08-06: Volumes Stabilising Post Measures


APAC Realty - Volumes Stabilising Post Measures

  • Maintain BUY with new DCF-derived SGD0.65 Target Price from SGD0.67, 24% upside plus 6% yield.
  • APAC REALTY LIMITED (SGX:CLN)'s 1H19 net profit missed, dragged by slower private resale volumes and higher marketing expenses. Still, transactions are showing signs of a pick-up in 2Q, with new launches and resale activity improving q-o-q.
  • The take-up rates for several recent launches were encouraging, and should result in a better 2H.
  • In the medium term, APAC Realty’s overseas market contribution should help buffer some of the local market’s volatility.

New launch pipeline remains healthy for 2H19-2020…

  • For 2H19, ERA secured a project marketing role for 26 projects (c.10,520 units), slightly higher than 1H19. While the take-up rate (opening weekend) at new launches slowed to 10-30% (from > 30%), the strong new launch pipeline has helped in maintaining overall transaction volumes, which we expect to be similar to last year’s (c.9,000 units).
  • Private resale market volume also improved (+27% q-o-q), but were down 50% y-o-y in 1H19 due to exceptionally strong resale activity prior to the cooling measures last year. We expect new sales and private resale volumes to improve slightly (5-10% higher) in 2H19.
  • HDB resale and rental market transaction volumes rose 7% y-o-y in 1H19, and are expected to remain steady for the rest of the year.

..but new launches’ market share weakened from competition.

  • ERA’s market share for new launches dipped to 26.4% (of total transaction value) in 2Q (1Q: 33.7%).
  • Management explained that it was due to the appointment of a higher number of agencies by developers amidst challenging market conditions. Private resale market share, however, improved to 35.4% (1Q: 31.9%) offsetting some of the weakness.

Increase in agent count and strengthening digital capabilities.

  • Agent count increased to 6,897 as at 1 Aug (+6% YTD), as management continued to increase headcount via organic and inorganic means. It also announced a strategic collaboration with UrbanZoom (Jun 2019) that will allow its agents and customers to benefit from accurate residential price prediction technology.
  • ERA will also enter into a partnership with UrbanZoom’s premier agent referral service that will generate business leads for its agents.

Efforts to penetrate into new launches segment in Indonesia and Thailand.

  • With the acquisition of regional franchises, management has been focusing on penetrating the lucrative new launches segment in these two markets. ERA Thailand has so far secured marketing rights for 18 projects (c.10,697 units), and ERA Indonesia has been appointed as the coordinator for six residential projects.
  • Its overseas contribution is still insignificant at present, but is expected to increase to c.5% in 2-3 years.

Earnings revisions.

  • We lower our FY19F-21F net profit by 11%, 5% and 3% arket share and margin assumptions.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2019-08-06
SGX Stock Analyst Report BUY MAINTAIN BUY 0.65 DOWN 0.670