SINGAPORE (Nov 30): RHB Research is starting coverage on APAC Realty at “buy” with a target price of $1.20 which is 15 times FY18 earnings or 15% lower than P/E of global peers.

In a Thursday report, analyst Vijay Natarajan notes that the stock offers an attractive 4.45% dividend yield for FY18, based on a management guided payout ratio of 50%.

Natarajan says APAC Realty as the “best proxy for investors looking to tap into the surging residential volumes in Singapore”.

The first being how APAC Realty’s commissions are purely driven by volume growth – unlike real estate developers, which require volume and price recovery for margins expansion.  

“Year to October, Singapore’s primary home – excluding executive condominiums (ECs) – and secondary sales have increased by 45% and 67% respectively y-o-y. Meanwhile, the Property Price Index has only grown by 0.3%... Thus, we believe APAC Realty is a better way to play the strong buying momentum” says the analyst.

Secondly, the analyst sees APAC Realty as a “holistic real estate services provider” under the ERA brand, with exclusive regional master franchise rights in 17 countries in the Asia-Pacific region as well as multiple sources of revenue, including training and valuation.  

In addition, APAC Realty has a steadily growing pipeline of projects, with 10 projects for launch in 2018 with 10,000 units secured. This is more than double from the 4,800 units from eight projects in 9M17.

“The group’s market share as a percentage of total transactions has been steadily increasing to 37.5% in 2016 from 25.7% in 2012. A key contributor to this growth has been APAC Realty’s project marketing segment. The outlook for this segment seems bright,” says Natarajan.

Lastly, the analyst notes healthy growth from the group’s non-brokerage segment where gross profit accounted for 19% of FY16’s total.

The segment includes a wide range of training programmes offered by the group to help retain and attract new agents

In his view, this segment offers earnings stability as it is less cyclical compared to the brokerage segment.

All in, Natarajan forecasts APAC Realty to post a 14% increase in FY18 net profit against a 54% surge in 2017 on the back of the residential property boom, with gross profit CAGR of 6% in 2016-2019 from the non-brokerage segment.

There is also upside potential from acquisitions or the expansion of businesses in new markets while the group’s net cash position gives room for inorganic growth.

As at 9.48am, shares in APAC Realty are up by 1 cent at 90 cents.