APAC Realty - RHB Invest 2020-02-25: Volumes Holding Up Despite COVID-19 Fears


APAC Realty - Volumes Holding Up Despite COVID-19 Fears

  • Maintain BUY and Target Price of SGD 0.60, 28% upside with c.4% yield.
  • APAC Realty (SGX:CLN)'s FY19 net profit was slightly below our (93%) but met consensus estimates. Sales at new launches and the secondary market have so far been holding up despite fears of pullback due to the COVID-19 outbreak. Our base case assumption is that impact, if any, from COVID-19 would be short term in nature.
  • We continue to expect recovery in both primary and secondary volumes. Dividend yield of c.4% offers downside support.

Good response at recent new launches despite COVID-19 outbreak.

  • The recent new launches of Parc Canberra (executive condominium) and The M Condo saw strong response, with > 300 units sold at both projects. ERA Realty Network was involved in both launches, and sold more than 35% of transacted units.
  • The good take-up rate was driven by, amongst others, attractive pricing, location attributes, underlying strong local demand, and precautionary measures taken by developers. Developers are also seen leveraging on technology to limit the impact of the outbreak.

No delay in upcoming launches; resale transactions seen holding up.

  • Management noted that many developers are still seen proceeding with launch plans as scheduled. For 2020, it has secured the marketing role for 25 new projects (7,466 units), with its agents also actively involved in selling of the balance units from past launches.
  • Volumes in the secondary market have also not seen any sharp slowdown so far based on management’s observation.
  • Overall, we maintain our expectations of slight growth (0-5%) in transaction volumes for both primary and resale markets in 2020. The HDB resale and rental market is also expected to fare slightly better.

Overseas markets and ERA APAC Centre to turn profitable in 2020.

  • Management expects positive contributions to the bottomline from ERA Indonesia and ERA Thailand, which it acquired in 2019. In Dec 2019, it also entered into a cooperation agreement to acquire a 49% stake in the ERA master franchisor in Malaysia.
  • Looking ahead, APAC Realty will continue to expand its overseas market presence to diversify its income, with Vietnam and Cambodia likely being the next targets.
  • The revamp of ERA APAC Centre is also complete, with operating profits seen in Nov/Dec 2019. For 2020, it expects c.SGD1m in net income from this asset.

Total dividend of 2 cents for FY19

  • APAC Realty's total dividend of 2 cents for FY19, translating to a 51% payout ratio, below our expectations of a 60% payout. We have lowered our FY20-22F payout ratio to 50% (from 60%), which still results in a decent yield of 4.5%.

Earnings and assumption changes.

Shekhar Jaiswal RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 0.600 SAME 0.600