APAC Realty - RHB Invest 2022-06-23: Value Emerging; Upgrade To BUY


APAC Realty - Value Emerging; Upgrade To BUY

  • APAC Realty (SGX:CLN)’s 1Q22 net profit exceeded our expectations. APAC Realty's share price has fallen 17% year-to-date, which we believe is partly due to concerns over the lowball mandatory offer triggered by Northstar selling its stake in APAC Realty to Morgan Stanley Private Equity (MSPE).
  • Despite an uncertain macroeconomic environment, we expect Singapore’s property market to remain resilient. We see value emerging at APAC Realty – the stock is trading at 9x FY22F P/E, with a handsome ~8% yield offering downside support.
  • Upgrade APAC Realty to BUY from Neutral, unchanged S$0.75 target price implies 25% upside.

APAC Realty's 1Q22 net profit grew 20% y-o-y to S$9m

  • APAC Realty's 1Q22 net profit grew 20% y-o-y to S$9m, driven by strong contributions from the new home sales segment, which clocked revenue growth of 42% y-o-y. This segment’s strong numbers were mainly due to the robust transaction activity in 4Q21 before the implementation of cooling measures in mid-Dec 2021 – there is a time lag of 2-6 months in earnings recognition for this segment.
  • New home sales have since plunged since the start of the year (year-to-date, 40% below last year’s numbers) on the back of limited supply. This, in turn, should result in a 30-40% plunge in 2Q22 net profit.
  • In 1Q, APAC Realty maintained its overall 37.9% market share (as a percentage of sales) of total Singapore residential property transactions.

MSPE offer closes with a 65% effective stake in APAC Realty

  • MSPE, in April, announced its acquisition of a ~60% stake of APAC Realty from Northstar, at S$0.57 per share. Northstar has been a major shareholder since 2013. The offer, in our view, was an opportunistic one that came on a market slowdown posed by Dec 2021’s cooling measures and limited new home supply. The offer closed on 10 Jun, with MSPE receiving 64.8% acceptance.
  • We remain positive on APAC Realty’s mid-to long-term outlook, on the back of its leading agency position in the stable Singapore property market and its master franchise rights for 17 countries in the Asia-Pacific.
  • The entry of MSPE, one of the largest investment managers globally (AUM of US$1.6trn as at end- Dec 2021) is also likely to bring in more M&A opportunities for the company, and will help deepen its Asia-Pacific expansion plans in our view.

Higher government land sales and pick-up in en bloc market positive for 2023-2024F transaction outlook.

  • The Singapore Government is raising price, and an increase in the pipeline of collective sales.

We lift FY22-23F earnings by 2%

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-06-23
SGX Stock Analyst Report BUY UPGRADE NEUTRAL 0.750 SAME 0.750