APAC Realty - DBS Research 2020-06-11: 3Q To Be Dragged By Weak 2Q Sales


APAC Realty - 3Q To Be Dragged By Weak 2Q Sales

  • Slight improvement in market share in 1Q20; ample supply ahead.
  • Adverse financial impact to be felt in 3Q20 from weak 2Q sales.
  • Cut APAC Realty (SGX:CLN)'s FY20F/FY21F earnings by 69/53% from pre COVID-19 projections.
  • Maintain HOLD with lower Target Price of S$0.41.

Slight improvement in market share in 1Q20.

  • ERA achieved a healthy 39.8% share of the residential property market in 1Q20, up from 37.9% in 1Q19 and 38.0% in FY19.
  • In the primary market segment, we estimated that ERA’s market share improved to 34.8% from 29.6% in 1Q19. Singapore’s private residential resale market recorded sales of 2,120 units in 1Q20, representing an increase of 11.3% y-o-y.
  • The HDB resale market saw a higher increase of 21.9% y-o-y to 5,893 transactions. ERA’s estimated market share in this segment improved slightly from 40.2% in 1Q19 to 41.4% in 1Q20.

Secured marketing mandate for 38 projects.

  • ERA has secured marketing agent mandates for 38 residential projects with approximately 12,300 new home units to be launched in FY20 and 1H21, of which 13 projects with close to 3,600 units were launched for sale in 1Q20.

Weak sales in 2Q20.

  • Market transactions plunged in the months of April and May 2020. With the implementation of circuit breaker measures from 7 April 2020, house viewings were suspended and showflats were closed to the public. As a result, marketing and sales activity of new homes can only continue on virtual platforms.
  • June is also expected to be weak as real estate activity remains suspended in Phase One, although the circuit breaker period ended on 1 June 2020.

Adverse financial impact to be felt in 3Q20.

  • As a result of the suspension of real estate business during the circuit breaker, and the time required for completion of real estate transactions, coupled with the time lag in revenue recognition, the adverse financial impact from the circuit breaker period will be felt only in 3Q20. Hence, 3Q20 is expected to be loss-making.

Cut APAC Realty's FY20F/FY21F earnings by 69/53% from pre COVID-19 projections.

  • On the back of the disruption to business activities due to the pandemic and a weaker global economy, with many regions including Singapore expected to be in a recession this year, we have lowered our sales assumption for all segments for FY20F versus our pre COVID-19 estimates.
  • We are now projecting a 34% y-o-y drop in transaction value for the private primary and secondary segment in FY20F, followed by a slight rebound of 3% in FY21F. The HDB resale market is also expected to be weak, -5% y-o-y in FY20F and +3% in FY21F. As such, we have cut our APAC Realty's earnings projection for FY20F/FY21F earnings by 69%/53%.
  • Our Target Price of S$0.41 (prev S$0.52, pegged to peers’ average of 12x on FY20F earnings) is based on the average forward PE of 19x on FY21F earnings.
  • See APAC Realty Share Price; APAC Realty Target Price; APAC Realty Analyst Reports; APAC Realty Dividend History; APAC Realty Announcements; APAC Realty Latest News.
  • Maintain HOLD on APAC Realty.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-06-11
SGX Stock Analyst Report BUY MAINTAIN BUY 0.41 DOWN 0.520