APAC Realty - DBS Research 2020-11-16: Resilience Amid The Crisis

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APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Resilience Amid The Crisis

• Upgrade APAC Realty to BUY on steady transaction volume and attractive valuations.
• Only a slight decline in transaction volume in 9M20 despite the COVID-19 pandemic.
• Raised sales assumptions, APAC Realty's FY20-21F earnings forecast raised 22- 25%.
• Supply still healthy despite fewer project launches.

Upgrade to BUY on stable transaction volume and attractive valuations

• We upgrade APAC Realty (SGX:CLN) to BUY from HOLD on better than expected property transaction activities. The property market remains resilience amid the COVID-19 pandemic.
• 9M20 transaction activities for the overall market only saw a slight decrease y-o-y. We are now expecting the overall market transaction value to ease 2.4% in FY20F and rebound 3.4% in FY21F and 7.9% in FY22F. Factors that can drive the market activities include the low interest rate environment and healthy supply of projects.

Transaction volume – Stable

• Stable volume despite COVID-19 impact. 9M20 transaction volume for all the different segments remained stable, with only a slight decline y-o-y despite the COVID-19 impact. The real estate market was affected during the Circuit Breaker period from 7 April to 1 June 2020. As Singapore emerged from the Circuit Breaker Period, the market offered potential buyers an attractive proposition supported by low interest rates, stable asset pricing and ample supply of inventory.

Strong rebound in 3Q20.

• In 3Q20, all segments of APAC Realty saw higher y-o-y transaction volumes, with the strongest growth in the resale market. Private resale transactions were up 42.2% in 3Q20 vs a year ago, while the HDB resale segment posted 24.3% y-o-y growth. Private new homes, excluding Executive Condominiums (EC) segment, was up 7.2% y-o-y while the private rental division inched up 0.6%.
• While 3Q 2020 transaction volume was higher than 2Q 2020, the positive financial impact will mostly be realised in 4Q 2020 due to the time lag in revenue recognition.

Market share for ERA – Slight increase during the 9-month period

Market share for new home sales stable at 29.7% in 3Q20.

• Developers sold 3,517 private residential units in 3Q 2020, an increase of 7.2% y-o-y. ERA’s market share in the new homes (Private + ECs) segment was relatively stable, at 29.7% vs 29.5% in 3Q19. On a 9M20 basis, ERA’s market share was 28.9% compared to 28.3% in the same period last year.

Supply still healthy despite fewer project launches.

• ERA marketed 21 projects with more than 5,500 units in the first ten months of 2020. ERA has secured marketing agent mandates for 21 residential projects with more than 9,200 new home units to be launched in the last two months of 2020 and FY 2021.

Fared better in resale market; market share improved to 42.1%.

• In 3Q 2020, the private residential resale market recorded sales of 3,530 units, representing a robust increase of 42.2% from 2,482 units in 3Q 2019. The HDB resale market also reported an increase of 24.3% to 7,787 units in 3Q 2020 from 6,264 units in 3Q 2019.
• In terms of market share, ERA fared better in the resale segment (Private + HDB). Its market share for 3Q20 improved to 42.1%, from 40.2% in 3Q19. On 9M20, its market share was up 1.9% to 42.2%, from 40.4% a year ago.

Overall market share healthy at 38.8%, a slight increase y-o-y.

• ERA achieved a healthy 38.8% share of the residential property market (exclude rental market) in 9M20, compared with 37.3% in the corresponding period last year and 38.0% for FY 2019.

Agent market share has increased steadily.

• ERA’s market share in terms of number of agents has increased to c. 23.1% from 21% in 2018, amid market consolidation over the last few years. Ranked second in the Singapore market, ERA has more than 7,200 agents as at 30 June 2020.

Earnings and Recommendation

Raised sales assumption for FY20F and FY21F.

• The property market has shown resilience amid the COVID-19 pandemic. 9M20 transaction activities for the overall market only saw a slight decrease y-o-y. We are now expecting the overall market transaction value to ease 2.4% in FY20F and rebound 3.4% in FY21F, vs our earlier assumption of a 11.9% drop in FY20F and 4% rebound in FY21F.

Upgrade to BUY with higher target price of S$0.53.

• See APAC Realty Share Price; APAC Realty Target Price; APAC Realty Analyst Reports; APAC Realty Dividend History; APAC Realty Announcements; APAC Realty Latest News.
• On the back of higher transaction value assumptions, we raised APAC Realty's FY20F and FY21F earnings by 25% and 22% respectively. Target price is increased to S$0.53 (prev S$0.40) on the back of higher earnings.
• We have also raised the valuation peg to 12.4x PE on FY21F earnings, which is the average of its 5-year PE, vs 11.4x at -1SD level previously, as we believe the worst is over for APAC Realty.
• At the current valuation, APAC Realty is trading at an attractive 9.4x FYxxF PE, which is slightly below -1SD of its 5-year average.
• Upgrade APAC Realty to BUY.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2020-11-16

SGX Stock Analyst Report BUY MAINTAIN BUY 0.53 UP 0.400