APAC Realty - DBS Research 2020-02-25: Moderate Growth Ahead


APAC Realty - Moderate Growth Ahead

  • Strong 4Q19 mainly on new launches; FY19 above expectations.
  • Slightly lower overall market share, dragged down by primary market.
  • Raised FY20F/21F earnings by 18%/15%.
  • Maintain HOLD with higher Target Price of S$0.52.

Strong 4Q19 mainly on new launches; FY19 above expectations

  • APAC Realty (SGX:CLN) reported a strong 4Q19, with net profit up 33% y-o-y (+58% q-o-q) to S$5.4m, on the back of a 32% y-o-y (+9% q-o-q) increase in revenue to S$107.8m. The increase in revenue was mainly due to higher brokerage income contribution from new home sales, accounting for 79.1% of total revenue.
  • For FY19, net profit of S$13.9m (-42.8% y-o-y) was 15% above our forecast. Total revenue of S$369.5m was 12.8% weaker than FY18.
  • In terms of property transaction value, the whole property market registered a 10% decline as compared to FY18.
  • Among the various segments, the primary market increased 16.7% but the secondary market was weak, down 30.2%. The leasing and HDB segment were stable with 2% growth for each.

Lower DPS.

  • A final DPS of 1.25cts was declared. Including the interim DPS of 0.75cts, APAC Realty's FY19 DPS amounted to 2cts (vs 4.5cts in FY18), representing a dividend payout ratio of 51% (66% in FY18).

Agent strength:

  • As at January 2020, APAC Realty has about 7,048 agents, +8.5% y-o-y, with market share of c.23%.

Slightly lower market share.

  • ERA’s overall market share in terms of transaction value was 32.8% is slightly lower than the 33.9% in FY18. The weakness was mainly in the primary market, where ERA’s market share dropped to about 34.4% from c.40.6% in FY18. One of the reasons could be that ERA does not encourage the extension of the sale and purchase (SNP) agreement, unlike its key competitors.

Ample supply.

  • To date, ERA has secured marketing agent appointments for 43 projects in 2019 and another 25 projects for 2020. The total number of unsold private residential units stood at 32,272 as at end 2019. The vacancy rate of completed private residential units continues to trend downwards and reached 5.5% as at 31 December 2019, coming down from a high of 8.9% as at 30 June 2016.
  • Apart from the 32,2721 unsold units (including ECs) with planning approval as at 31 December 2019, there is a potential supply of 6,050 units (including ECs) from Government Land Sales (GLS) sites and awarded en-bloc sale sites that have not been granted planning approval yet.

Minimal impact from Covid-19.

  • As of now, other than more precautious measures put in place, APAC Realty is still not seeing any delay in project launch due to Covid-19. However, the situation remains fluid and evolving.

Raised earnings by 18%/15% for FY20F/FY21F.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.52 UP 0.460