APAC Realty - CGS-CIMB Research 2020-02-21: Strong Performance In 4QFY19

APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Strong Performance In 4QFY19

APAC Realty (SGX:CLN)’s 4Q/FY19 EPS of 1.54/3.94 Scts are broadly in line with expectations, at 37%/96% of our FY19 forecast.
4Q performance boosted by higher income from new home sales and improvement in share of resale market transactions.
We reiterate our ADD rating, with a lower Target Price of S$0.61.

APAC Realty (SGX:CLN) reported a 31.7% y-o-y jump in 4Q19 revenue to S$107.8m, while gross profit rose 35.7% y-o-y to S$15.2m. Gross profit margin rose 0.4% pt to 14.1%. 4Q net profit came in at S$5.5m (+33.3% y-o-y).
For FY19, APAC Realty reported a net profit of S$14m (-42.2% y-o-y) as gross revenue declined 13.1% y-o-y to S$369.5m. Results were broadly in line with our expectations, at 96% of our FY19 forecast.
APAC Realty declared a final DPS of 1.25 Scts, bringing total DPS for FY19 to 2 Scts, which translates into a yield of c.4.3%.

The better 4Q performance was due to higher brokerage income contribution from new home sales, which jumped 79% y-o-y to S$42.1m. This was in tandem with a market pick-up in primary volume transactions due to a low base in 4Q18, post-property cooling measures. APAC Realty garnered a c.36% market share of primary transactions in FY19.
In addition, brokerage income from resale market transactions and rental of properties also increased 11.9% to S$62.8m. Its market share of resale transactions ticked up in 4Q and raised its FY19 market share to 33.4%.
Going into FY20F, APAC Realty indicated it has a network of 7,048 agents as at 1 Jan 2020 and had secured a healthy pipeline of marketing appointments, with 25 projects (7,466 units) to be launched this year.

In terms of its regional expansion strategy, the group has 6,500 agents across 114 member brokers in Indonesia, while ERA Thailand posted positive performance in FY19. It has 420 agents across 22 member brokers in Thailand and had closed c.1,000 units of primary and secondary transactions in FY19. We anticipate these overseas operations to continue to gather momentum from FY20 onwards.

We revise our FY20-21F EPS down by 12-16% post-results as we tweak down our sales growth assumptions for primary, secondary and HDB resale markets to 0-1% from 3% previously. Accordingly our Target Price is lowered to S$0.61, still based on an average of 10x CY21F P/E and DCF valuations.
See APAC Realty Share Price; APAC Realty Target Price; APAC Realty Analyst Reports; APAC Realty Dividend History; APAC Realty Announcements; APAC Realty Latest News.
We think the re-rating catalyst for the stock could be a stronger-than-expected recovery in transaction volumes, while downside risks include lower commission and property cooling measures, which would hamper sales outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-02-21

SGX Stock Analyst Report ADD MAINTAIN ADD 0.61 DOWN 0.66