APAC Realty - RHB Invest 2021-05-05: Beneficiary Of Strong Residential Volumes


APAC Realty - Beneficiary Of Strong Residential Volumes

  • Among the largest real estate agencies in Singapore, with a healthy ~33% market share of total transactions.
  • APAC Realty is trading at 10X FY20 P/E vs peer PropNex (SGX:OYY)’ 12x P/E, offering 5% dividend yield.
  • Growing regional presence in Thailand, Indonesia, Vietnam etc., and enhancing its digital efforts to position for the future.

APAC Realty - Company Profile

  • APAC Realty (SGX:CLN) is one of Singapore’s largest real estate agencies. It has regional master franchise rights to 17 countries in the Asia Pacific. Through its ERA franchisee network, the group has one of the largest brand footprints in Asia, with more than 18,000 salespersons. In Singapore, it is the second largest agency in terms of agent count, with more than 7,800 salespersons providing property brokerage services for primary and secondary home sales, as well as rental of residential, commercial and industrial properties.

APAC Realty - Investment Highlights

Buying momentum to remain strong – barring strong cooling measures.

  • Sales momentum continued to be robust in 2021 with March’s new sales hitting 1,296 units – double that of February, and the highest March monthly sales since 2017. A similar trend was seen in the private resale and HDB resale market. Key factors underpinning strong volumes are ultra-low interest rates, strengthening economic recovery with the COVID-19 situation under control, and the outpacing of household income growth over the last decade when compared to property price growth.
  • Moving into 2021, we expect the property market to continue to remain resilient with new private sales volumes to see a 0-5% growth, while resale volumes are expected to increase by 5-15%.

Market share and agent count showing improvement.

  • Based on its internal estimates, ERA secured an overall residential market share of ~33.3% in FY20 vs FY19’s 32.9%. While its new sales’ market share was slightly lower for FY20 at 31.3% (FY19: 34.6%), it gained market share in the buoyant private resale market in FY20, with 36% (FY19: 33.3%) while maintaining its leadership position in HDB resale market.
  • ERA Singapore’s agent count has also jumped to 7,771 agents as of end-2020 (FY19: 6,967), with an agent market share of ~26% from 23% last year. For FY21 the company has secured the marketing agent role for 24 projects (8,802 units), similar to FY20.

Overseas entities offer long-term earnings diversification.

  • ERA’s overseas entities (Indonesia, Thailand, Vietnam and Malaysia) were impacted by market slowdown due to COVID-19, and combined were in slight net loss position (FY20). Management remains optimistic on the longer-term prospects of these markets, and sees it as a long-term diversification strategy to mitigate the Singapore market’s cyclicality.

APAC Realty - Company Report Card

  • FY20 net profit up 18% y-o-y, driven by a strong recovery in residential sales in 2H, and the government grant under the Jobs Support Scheme of S$1.9m. FY20 private new home sales (excluding executive condominiums) was up 0.7% y-o-y to 9,982 units, while private resale volumes rose 18% y-o-y to 10,927 units. For FY21, we expect new sales (0-5% higher) and resale volumes (0-10% higher) to remain robust, underpinned by ultra-low interest rates and the economic recovery. Our FY21F net profit, excluding one-off government grants (FY20), is thus expected to grow by 8%.
  • Low gearing levels. As at FY20, APAC Realty has a low net debt of S$17m (net gearing: 11%). It has minimal capex requirements and generates strong operating cash flows. We expect it to turn to a net cash position in the next three years.
  • Dividend yield of 5%. APAC Realty announced a total dividend of 2.5 cents (FY19 2.0 cents) for FY20, translating to a payout of 54.3% (in line with the 50-60% guidance) and we expect similar dividends for FY21.
  • Experienced management team. One of APAC Realty’s key strengths is its experienced and capable management team. Its executive officers have an average of 20 years of experience in the real estate industry. In addition to its executive officers, APAC Realty is supported by eight heads of departments for each of its business segments. These heads have an average of 18 years of experience within the group.

APAC Realty - Investment Case

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2021-05-05
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