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Analysts mixed on APAC Realty after solid 3QFY21 results

Felicia Tan
Felicia Tan11/17/2021 12:27 PM GMT+08  • 4 min read
Analysts mixed on APAC Realty after solid 3QFY21 results
CGS-CIMB and RHB analysts have kept 'add' and 'neutral' while DBS has downgraded the counter to 'hold'.
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Analysts from CGS-CIMB Research, DBS Group Research and RHB Group Research are mixed on APAC Realty after the group saw net profit after tax (NPAT) surge 139% y-o-y to $26.1 million for the 9MFY2021 ended September.

CGS-CIMB Research analyst Lock Mun Yee is the most positive out of all three brokerages with an unchanged “add” recommendation.

Lock has also upped her target price estimate on the counter to 99.6 cents from 96 cents previously, after APAC Realty’s NPAT for the 9MFY2021 stood above her expectations, at 85% of her FY2021 forecast.

See: APAC Realty promotes COO Doris Ong to deputy CEO

In addition, she has lifted her earnings per share (EPS) estimates for the FY2021 to FY2023 by 11-17.2% to reflect the better-than-expected 3QFY2021 performance.

For the 3QFY2021, Lock notes that APAC Realty’s net profit works out to $9.1 million, which is lower than the $17 million posted in the 2QFY2021, and higher than 1QFY2021’s $7.5 million.

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To Lock, APAC Realty is “still going strong” in the 3QFY2021 as higher commissions across all market segments boosted its performance for the 9MFY2021.

Looking ahead, we believe the resale residential market is likely to remain robust, in tandem with the primary residential segment,” she writes in a Nov 15 report.

The reopening of the economies in Indonesia, Malaysia, Thailand and Vietnam should spur more home buying going forward, as well.

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Meanwhile, DBS Group Research analyst Ling Lee Keng has downgraded APAC Realty to “hold” from “buy” with a lower target price of 88 cents from $1.05.

“Given the lacklustre growth outlook, we downgrade our recommendation on APAC to ‘hold’ from ‘buy’. At current level, we believe the positives are priced in,” explains Ling in a Nov 15 report.

APAC Realty’s share price has surged 118% since DBS’s recommendation upgrade in November 2020.

The lower target price is pegged to a lower price-to-earnings (P/E) ratio of 10 times on FY2022 earnings, which is APAC Realty’s four-year average.

“Earnings could taper and move sideways in the next one to two years. Furthermore, the stock is at risk of de-rating if property cooling measures are announced,” says Ling.

“Going forward, the depleting inventory of unsold new launches as well as construction delays could result in fewer new launches available for sale. Hence, the new homes segment could be weaker after a stellar performance in FY2021. The private resale and HDB resale segments could remain stable, barring any cooling measures,” she adds.

That said, Ling says she is more cautious on APAC Realty’s outlook compared to the rest of the brokerages due to the expectation of fewer new launches amid depleting inventory.

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RHB Group Research Vijay Natarajan has remained “neutral” on APAC Realty. He has, however, upped his target price to 90 cents from 88 cents previously on the group’s “solid quarter of earnings”.

Natarajan has also upped his net profit estimate for the FY2021 to FY2023 by 8-12% on the back of resilient market fundamentals and market share gains.

“The earnings surge was driven by strong residential momentum in primary and resale market volumes where 9MFY2021 transactions have exceeded that of the entire 2020,” he notes in a Nov 16 report.

For more stories about where the money flows, click here for our Capital section

APAC’s slight increase in primary market share for the 9MFY2021 is likely to be sustained, he says.

“Based on its internal estimates, APAC secured a primary market share of 32.6% for 9MFY2021, up from 28.6% during the same period last year. This is positive as margins in primary sales are more than double that of the resale margins. Although there has been pressure of late on primary sales margins, management expects it to stabilise around the current levels of 13-14%,” he writes.

While Natarajan has showed concerns on the limited supply in the pipeline amid the declining inventory levels, the gathering momentum in the enbloc market would provide a “positive boost” in terms of more launches likely for 2023.

“While sales across new launches and resale remain buoyant, risks are emerging with interest rate increase on cards that could put the brakes on volume and prices as well as risk of stringent cooling measures,” he says.

As at 12.27pm, shares in APAC Realty are trading 0.5 cent lower or 0.62% down at 80.5 cents.

Photos: Albert Chua/The Edge Singapore

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