APAC Realty - DBS Research 2021-02-24: Expect A Better 2021; Maintain BUY With Higher Target Price


APAC Realty - Expect A Better 2021; Maintain BUY With Higher Target Price

  • A commendable set of FY20 results from APAC Realty despite the COVID-19 pandemic, trumping expectations.
  • Resale and rental did better than new home sale; higher dividend declared.
  • Secured marketing agent for 24 projects in 2021, similar to 2020.

Better FY20 despite COVID-19, driven by locals amid low interest rate.

  • Despite the on-going COVID-19 pandemic and the suspension of the real estate business during the circuit breaker period from 7 April to 1 June 2020, APAC Realty (SGX:CLN) has performed better relative to FY19. 2H20 was stronger than 1H20, driven mainly by local buyers, HDB upgraders amid the low interest rate environment. 2H20 revenue and net profit gained 28.6% and 11.9%, respectively, as compared to 1H20.

Commendable FY20 results, coming in above expectations.

  • APAC Realty's FY20 net profit gained 17.3% to S$16.4m, on the back of the 6.9% increase in total revenue to S$395.1m. FY20 net margins improved to 4.2% from 3.8% in FY19.
  • Overall, APAC Realty's FY20 results were 15% above our net profit projection.

Resale and rental did better than new home sales.

  • In terms of segmental breakdown, FY20 brokerage income from resale and rental of properties improved 10.7% y-o-y to S$267.4m but income from new home sales slid 1% y-o-y to $116.4m.

Higher dividend declared.

  • A final dividend of S$0.0175 was declared. Together with the interim dividend of S$0.0075, APAC Realty's total dividend for FY20 of S$0.025 represents a dividend payout ratio of 54%, slightly higher than the 51% for FY19.

Market share improved to 28%.

  • ERA’s market share for the residential segment improved to 28% in FY20 in terms of transaction volume, from 26.6% in FY19. ERA’s market share for the new homes segment was down in 1H 2020 but it managed to pick up in Q4 2020 after the government announced no more extension of Option to Purchase (OTP). ERA has seen its market share picked up to around 35% to 40% for recent launches.
  • The number of agents increased to 7,771 as at 1 Jan 2021, up 11.5% y-o-y.

For the overall property market, all segments recorded higher unit sale.

  • For the overall property market, new home sales saw a 5% y-o-y increase to 10,940 units (including ECs) in 2020. The private residential resale market recorded sales of 10,927 units, an increase of 18.3% y-o-y. The HDB resale market also reported an increase of 4.4% to 24,748 units in 2020.

Healthy project pipeline.

  • As of 31 December 2020, there were 26,426 unsold units (including ECs). The vacancy rate of completed private residential units has increased to 7.0% as at 31 December 2020, from 5.5% a year ago.
  • Apart from the 26,426 unsold units (including ECs) with planning approval as at 31 December 2020, there is a potential supply of 4,700 units (including ECs) from Government Land Sales (GLS) sites that have not been granted planning approval yet.

Secured marketing agent for 24 projects in 2021, similar to 2020.

  • Amid a challenging market, ERA was appointed marketing agent to 24 projects with more than 7,200 new home units launched during 2020. The group has secured marketing agent mandates for 24 residential projects with more than 8,800 new home units launched and to be launched in FY2021.

Expect a better FY21F; Maintain BUY with higher target price of S$0.61.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-02-24
SGX Stock Analyst Report BUY MAINTAIN BUY 0.61 UP 0.530