APAC Realty - CGS-CIMB Research 2020-08-17: Strong 1H Performance

APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Strong 1H Performance

We deem APAC Realty's 1H20 EPS of 2.18 Scts in line at 58% of our FY20F forecast as we expect 3Q to be more muted with a lag in profit recognition.
APAC Realty achieved strong brokerage income in 1H20. We expect overseas activities to improve in 2H20F.
We reiterate our ADD call with a Target Price of S$0.538.

APAC Realty (SGX:CLN) reported a 6% y-o-y rise in total revenue to S$172.8m in 1H20, led by higher project marketing revenue. Net profit jumped 52% y-o-y to c.S$7.8m (EPS: 2.18 Scts) due to
1. an 8.5% rise in gross profit on higher revenue,
2. slight 0.2% pt improvement in gross profit margin to 12.5%,
3. reduction in marketing and promotion expenses,
4. lower finance costs on the back of a decline in borrowings,
5. lower effective interest cost, and
6. lower other expenses.
APAC Realty proposed an interim DPS of 0.75 Scts, translating into an annualised dividend yield of 4%.

APAC Realty generated S$112.9m or c.65% of its topline from brokerage income from resale and rental of properties. Although private and HDB resale transaction volumes fell 29% and 16% y-o-y respectively in 1H20, we believe APAC Realty managed to increase its market share to 42.2% (vs 40.3% in 1H19), thus boosting revenue from this segment. It also raked in S$54.3m (+15.5% y-o-y) of brokerage income from new home sales with the pick-up in sales in the private residential market in 2019.
APAC Realty has 7,221 agents at end-Jun 2020, a 3.6% increase since Jan 2020. We expect primary home transactions to remain resilient in 2H20. With slower h-o-h volume sales in both the primary and resale residential segments in 1H20 and the time lag in profit recognition from these sales, we believe earnings growth momentum could slow in 3Q before picking up towards year end.
APAC Realty has been appointed marketing agent for 42 projects in 2020, of which 15 projects have already been launched.

We think overseas contributions could improve towards end-FY20F. APAC Realty plans to engage an external agency to drive digital marketing in Thailand. In addition, it is considering developing an asset management business as mortgagee sales are expected in 2H20. This will present opportunities to invest, rebuild and re-sell assets for quality return.
APAC Realty also invested S$1.5m for a 38% stake in ERA Vietnam. According to management, the Vietnam market is showing signs of recovery from COVID-19 and launches are expected to come to market in 2H20.
APAC Realty has been appointed lead marketing agency for several projects in Vietnam from both Singapore and local Vietnamese developers. In Malaysia, its Kuala Lumpur and Johor offices are being established and scheduled to open in 4Q20.

Reiterate ADD. Our Target Price of S$0.538 for APAC Realty is based on 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.
A re-rating catalyst for APAC Realty includes the ability to regain market share in both the primary and secondary residential segments.
Downside risk: protracted recovery of the property market due to weak macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-08-17

SGX Stock Analyst Report ADD MAINTAIN ADD 0.540 SAME 0.540