APAC Realty - CGS-CIMB Research 2021-02-25: Benefiting From Higher Volumes

APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Benefiting From Higher Volumes

APAC Realty's 2H20/FY20 earnings per share of S$0.0244/S$0.0463 is above our expectations, at 65%/123% of our FY20F forecast.
Private and HDB resale segments performed better y-o-y, momentum to continue into 2021F.
Reiterate ADD with a higher target price of S$0.675.

APAC Realty (SGX:CLN) reported a 7.7% y-o-y rise in 2H20 total revenue to S$222.3m, led by higher brokerage income from the resale and rental of properties. However, 2H net profit dipped 2.5% y-o-y to S$8.7m on the back of slightly lower gross profit margin of 11.6% (vs. 12.8% in 2H19) due to product mix, a y-o-y decrease in share of new home sales market and higher other operating expenses due mainly to write-off of other investment and investment in associate and forex loss, partly offset by lower marketing and promotion expenses.
APAC Realty's FY20 net profit of S$16.4m (earnings per share: S$0.0463) is up 17.3% y-o-y. The group proposed final dividend of S$0.0175, bringing APAC Realty's FY20 dividend to S$0.025 per share, translating to a yield of 5.7%.

APAC Realty generated S$267.4m or ~68.7% of its topline from brokerage income from resale and rental of properties. The 10.7% y-o-y improvement was achieved through a 21.7% increase in the total market value of private and HDB resale transactions and an uptick in market share. Brokerage revenue from new home sales slipped 1% in FY20 to S$116.4m despite a slight rise in overall transaction value due to a dip in market share in this segment.
APAC Realty has 7,771 agents as at Jan 2021, a 11.5% increase since Jan 2020.
Management expects the private resale market to maintain its growth momentum in FY21F while the HDB resale market is likely to stay robust. As such, we believe APAC Realty’s performance should continue to benefit from the volume transaction upswing.
APAC Realty has been appointed marketing agent for 24 projects in 2021 year-to-date.

We think overseas contributions could improve gradually in FY21F. The recent passing of the Omnibus bill in Nov 2020 in Indonesia could benefit the real estate market in the long run, while the soft opening of ERA Vietnam’s Da Nang office in 4Q20 could result in more marketing activities in FY21F. ERA Vietnam has been appointed lead marketing agent for several projects in Vietnam such as Celeste Rise, Vinhomes Grand Park and Wyndham Soleil to date. This should translate to more activities going forward.

We tweak up our APAC Realty's FY21-22F earnings per share forecast by 23.1%-24.2% as we assume a higher market transaction volume, particularly for the private resale segment. Accordingly, our target price for APAC Realty is raised to S$0.675, based on an unchanged 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 2021-02-25

SGX Stock Analyst Report ADD MAINTAIN ADD 0.675 UP 0.540