APAC Realty - RHB Invest 2020-11-23: Play On Residential Volume Recovery; Keep BUY


APAC Realty - Play On Residential Volume Recovery; Keep BUY

  • Singapore residential volumes have staged a strong rebound in 3Q, with recovery seen across both primary and resale market. ERA Realty (ERA), APAC Realty (SGX:CLN)’s wholly owned subsidiary, which commands c.33% residential market share, is well positioned to ride on this recovery.
  • APAC Realty’s current P/E of 10x is not expensive in our view when compared to low-mid teen levels typically seen during market upcycles.

Strong recovery in residential market volumes likely to sustain.

  • Private new sales have rebounded sharply since June post gradual easing of restrictions with year-to-date (October) volumes growth only 5% below that of last year. Similarly, private resale and HDB resale volumes have also bounced back and are down only 3%/2% as of 9M20. The strong volume recovery has well surpassed our and market expectations and has been driven by ultra-low interest rates, HDB upgrader demand and Government support measures.
  • While Urban Redevelopment Authority’s (URA) latest move to clamp down on reissue of options has cooled off some frenzy (c.5-10% reduction in demand) we do not expect any significant reduction in transaction volumes in coming months. We have thus revised our overall transaction volumes assumptions and now expect a 5-10% decline for 2020 compared to a previous 25-30% decline.
  • For 2021-2022 we assume a flattish to slight growth in volumes.

Market share position maintained.

  • Based on its internal estimates ERA has achieved a 33% market share of overall residential market transaction by value in 9M20 (32.1% in 9M19).
  • In terms of transaction volumes, ERA has a 28.9% market share (28.3% in 9M19) of new homes – private and executive condos and 42.2% of resale market (40.3% in 9M19). Agent count is also up 6% year-to-date to 7,400 as of Oct 2020.

Enhancing digital efforts to position for the future.

  • ERA has established partnerships and invested (S$2.4m) in proptech companies such as Dots Connected (which owns and operates UrbanZoom), SoReal Prop, Turning-Point and Fang.
  • In July, ERA secured the exclusive listing rights to list Singapore properties on Fang.com, a leading property portal in China to tap into growing Chinese demand.
  • In October, ERA entered into a partnership with Matterport to provide its sales team a fast, convenient and low-cost method to capture 3D virtual tours of client properties.
  • ERA also held a virtual property weekend on Oct 10 and 11, featuring Singapore’s largest virtual real estate gallery. The event attracted more than 168,000 online viewers. Following the success, ERA has partnered with PropertyGuru Asia to run the Asia Virtual Property Expo from 11 Nov to 12 Dec 2020.

Earnings changes.

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-11-23
SGX Stock Analyst Report BUY MAINTAIN BUY 0.550 UP 0.500