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

APAC REALTY LIMITED (SGX:CLN)

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, 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, 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.

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

Vijay Natarajan RHB Securities Research | https://www.rhbinvest.com.sg/ 2022-06-23

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