SINGAPORE (Nov 13): RHB Research is maintaining APAC Realty at “buy” given its slight 3Q beat, stock selldown after the latest round of cooling measures in July and healthy demand shown at recent launches.

APAC Realty posts 19% rise in 3Q earnings to $6.5 mil on higher revenue

“We expect steady sales to continue as developers remain mindful of the high supply pipeline and stringent ABSD regulations would prompt them to focus on clearing inventory,” says analyst Vijay Natarajan in a Tuesday report.

In 3Q18, APAC Realty’s gross margin improved to 12.9% from 11.8% in 1H18 which saw a large number of co-broking transactions. Going forward, gross margin should stabilise at 12-13%, according to RHB.

In Oct, APAC Realty announced the acquisition of agents from CBRE Realty Associates and HSR International Realtors.

“With the cooling measures opening up a window for agency consolidation, we see the move as timely and will help to keep pace with larger rival, Propnex, in terms of agent count,” says Natarajan.

Post-cooling measures, launches have remained steady, says RHB, with more than 3,000 units being sold across 18 new launches since July as developers lowered pricing by 10-15% and with pent-up liquidity from en-bloc sales slushing around.

As volumes, not pricing, are APAC Realty’s key driver, Natarajan says the impact of policy measures is mitigated. Looking ahead, ERA has secured a new launch pipeline of 27 projects, translating to 12,958 units.

In the private resale market, Natarajan believes units held back for potential en bloc sale should be released back with the en-bloc cycle nearing its end and this should support resale volumes in 2019.

Meanwhile, the HDB resale & rental market segment should not impacted by measures.

“Overall, we have modelled in a 10%/5% decline in primary volumes and 5%/2% decline in secondary volumes for 2018-2019,” says Natarajan.

RHB has a lower target price of 72 cents or 7.4 times FY18F earnings, a more than 20% discount to its closest peer Propnex which Natarajan thinks is “unjustified”.

Dividend yield at 8% also attractive.

Year to date, shares in  APAC Realty are down 44% at 49 cents at at 12.18pm.