APAC Realty - CGS-CIMB Research 2020-06-02: Slower Sales Environment

APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Slower Sales Environment

Primary private home sales of 322 units for the first 3 weeks in May, YTD new home sales -22% y-o-y.
Lower FY20-22F EPS for APAC Realty (SGX:CLN) on moderated market transaction volumes.
Maintain ADD rating with a lower Target Price of S$0.538.

According to the latest available Urban Redevelopment Agency (URA) data, sales of new private homes during the circuit breaker of 1st to 24th May 2020 totaled 322 units, slightly more than the 270 units recorded in Apr.
The best-selling projects were Parc Clematis, Parc Esta, The Florence Residences and Treasure at Tampines, making up close to 44% of total sales in that period. This brings YTD new home sales, excluding executive condominiums, to 2,848 units, -22% y-o-y and accounting for c.36% of the lower-end of our 2020F transaction volume of 8,000-9,000 units.

Given the two quiet months of Apr/May, and that property showrooms still remain closed during Phase 1 of the post-circuit breaker re-opening, we have reviewed APAC Realty’s earnings estimates to reflect more moderate market transaction volume expectations.
We note that APAC Realty’s registered base has grown to 7,215 agents, going by the Council of Estate Agent data as at 1 Jun 2020, making it the second largest after PropNex (SGX:OYY) (ADD, Target Price S$0.63, see report: PropNex - CGS-CIMB 2020-05-18: Strong Project Marketing Activity In 1Q20) by agent headcount, with a c.23% market share. This should translate to an expanded marketing network in the medium term.
Meanwhile, APAC Realty indicated that, as of Feb 2020, it had secured a healthy pipeline of marketing appointments with 25 new projects (7,466 units) to be launched this year. As such, a key catalyst for APAC Realty's share price outperformance would be the ability to garner more market share going forward.

In terms of its regional expansion strategy, the group has 6,500 agents across 114 member brokers in Indonesia and 420 agents across 22 member brokers in Thailand, as at end-FY19.
In Feb 2020, APAC Realty invested S$1.5m for a 38% stake in ERA Vietnam. The franchise is profitable and has a team of 900 agents and an estimated 20% market share of Vietnam’s project marketing sector in FY19. This positions the group for robust medium-term growth as it leverages the faster-growing real estate markets in Southeast Asia.

We lower our FY20-22F earnings estimates by 12.2-19.4% on slower market volumes, assuming that APAC Realty retains its market share of c.36% in the primary home sale market and 33.4% for the private resale market, unchanged from FY19. Accordingly, our Target Price is lowered to S$0.538, based on an unchanged assumption of an average of 10x FY21F P/E and DCF valuation.
See APAC Realty Share Price; APAC Realty Target Price; APAC Realty Analyst Reports; APAC Realty Dividend History; APAC Realty Announcements; APAC Realty Latest News.
Upside catalysts for APAC Realty include the ability to regain market share in both the primary and secondary residential segments.
Downside risks: protracted recovery of the property market due to weak macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-02

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