APAC Realty - DBS Research 2021-08-13: Tailwind From Unfaltering Property Appetite

APAC REALTY LIMITED (SGX:CLN)

APAC Realty - Tailwind From Unfaltering Property Appetite

APAC Realty reported excellent 1H21 results underpinned by strong demand.
Higher interim and one-off special dividend; sets payout ratio at 50-80% vs 54% in FY20.
Improving market share, especially in the new home market.
Maintain BUY with higher target price of S$1.05.

APAC Realty (SGX:CLN)'s 1H21 revenue jumped 107% y-o-y to S$358.4m, due to higher contribution from all market segments.
Transaction volumes were relatively healthy across all market segments, buoyed by optimism in the outlook for the Singapore economy and the relatively low interest rate environment. Revenue from new home sales/ resale and rental increased 146%/95% y-o-y in 1H21.
Net profit surged 120% to S$17m, accounting for 65% of our forecasts, roughly in line as 2H21 could be weaker due to the recent tighter measures in place to curb the worsening COVID-19 situation.

APAC Realty has declared an interim dividend of S$0.035 (vs S$0.0075 in 1H20) and a one-off special dividend of S$0.03. The interim dividend represents a dividend payout ratio of 73% based on 1H21 earnings, which works out to an annualized dividend yield of ~8.5%.
APAC Realty has also established a dividend policy to distribute 50% to 80% of its profits as dividends on a semi-annual basis. In FY20, dividend payout ratio was 54%.

ERA’s market share in the new home market improved to 32.1% from 27.9% a year ago. ERA maintained a healthy 41.1% market share in the overall residential property market in 1H21, compared to 38.4% in 1H20, in terms of transaction volume for new homes, private residential and HDB, but excludes leasing transactions.

Property price index for the private residential segment increased by a smaller 0.8% q-o-q, vs the 3.3% increase in the previous quarter, partly affected by the Heightened Alert in June. The HDB resale price index gained 3% q-o-q in 2Q21, similar to the gain in 1Q21.
Prices of non-landed units in Outside Central Region (OCR) saw the biggest q-o-q increase of 1.9% in 2Q21, followed by Rest of Central Region (RCR) with a 0.1% gain and Core Central Region (CCR) at 1.1%. In 1Q21, OCR/RCR/CCR saw increases of 1.1%/6.1%/0.5% respectively.
Lower launches of 2,356 units in 2Q21, vs 3,716 in 1Q21. Take-up rate was also 15.1% lower.
Dwindling stockpile. Of the supply of 47,097 units in the pipeline, 19,384 remained unsold as at end 2Q21, lower than 21,602 units in the previous quarter.
Resale market was strong. There were 18% more units transacted in the private residential market compared to 1Q21. The resale market has been robust in the last few quarters, accounting for >50% of total sales in the private residential market.
For the HDB segment, the resale price index was up 3% vs 1Q21. With construction activities curtailed by safe-distancing measures and border curbs contributing to a labour crunch, completion timelines for both build-to-order (BTO) HDB flats and private developments have been disrupted.
Hence, more buyers are turning to the resale market. The brisk demand for HDB resale has also helped buyers to upgrade to private homes.

We have raised our target price for APAC Realty to S$1.05 (Previously S$0.74) pegged to +1 standard deviation of its 5-year average P/E of ~14x on FY21F earnings, vs our previous basis of 5-year average P/E of ~10x, given the current buoyant property market. This is on the back of the improvements in both the COVID19 situation as more people are inoculated, and the economy.
Though APAC Realty's share price has gained ~90% year-to-date, it still lags peer PropNex (SGX:OYY)'s performance of ~150% gain during the same period.
See

With the property price index maintaining its uptrend, coupled with the recent record prices for new launches and land, we read such strong momentum with caution given possible actions to cool the strong demand for property. Furthermore, MAS Chief has also highlighted the potential of levying a property gain tax in recent media comments.

Lee Keng LING DBS Group Research | https://www.dbsvickers.com/ 2021-08-13

SGX Stock Analyst Report BUY MAINTAIN BUY 1.05 UP 0.740