APAC Realty is adapting to property cooling measures, with 9MFY2022 ended September results above expectations, writes DBS Group Research analyst Ling Lee Keng.
In a Nov 11 note, Ling is upgrading APAC Realty to “hold” from “fully valued”, with a higher target price of 59 cents from 41 cents previously. The new target price represents an upside of 6% against the traded price of 56 cents on Nov 10.
Total revenue for 9MFY2022 was down 3.2% y-o-y to $523.9 million. Despite the 43% y-o-y drop in units sold for the new home segment, revenue only saw a 0.6% decline to $210.1 million, mainly due to the higher selling prices. Resale and rental revenue eased 4.8% y-o-y to $310.2 million.
For 3QFY2022, revenue was up 1.5% y-o-y and 5.7% q-o-q.
Meanwhile, 9MFY2022 net profit declined 8.5% to $23.9 million, above expectations. 9MFY2022 net profit declined 8.5% y-o-y to $23.9 million, on the back of lower revenue and net margins of 4.6% compared to 4.8% in FY2021.
Net margin for 3QFY2022 dropped to 4% compared to 4.5% in 2QFY2022 and 5.1% in 3QFY2021, mainly due to higher marketing-related expenses post the reopening of the economy.
Knee-jerk reaction to last two quarters
Ling points to the “resilient” property market, supported by a strong pipeline of new launches, stable prices and demand.
“The knee-jerk reaction to the latest round of cooling measures introduced on Sept 30 is expected to last one to two quarters,” says Ling. “[This is] similar to the previous rounds of measures in 2018 and 2021, based on the Private Property Price Index performance.”
Hence, APAC Realty could see a weaker 4QFY2022 and 1QFY2023. “Overall, the property market is expected to remain resilient in 2023, supported by the strong pipeline of new launches and resilient demand from both locals and foreigners. The pace of the price increase, however, could be muted given the macro headwinds including rising inflation and slower economic growth,” writes Ling.
Looking at history, the knee-jerk period for the cooling measures implemented in 2013 was about four years, notes Ling. “Notably, net profit for APAC only managed to reach the pre-measure level in 2017… Based on historical records, net profit for APAC Realty declined by about 30% to 40% following the implementation of major cooling measures, but the rebound in the subsequent years was also strong.”
ERA market share falls
Ling notes a slight drop in overall market share by APAC Realty’s agency ERA. “ERA’s overall market share eased slightly to 40.1% compared to 40.2% for 9MFY2021. New home and private resale segments were weaker while the HDB resale and leasing divisions were stable.”
Ling points to more new home supply in the pipeline for 2023. “ERA has secured marketing mandates for 13 projects with a total of 3,642 units launched so far. Another two more projects — Hill House and Tenet — with a total of 690 units are expected to be launched in 2022. For 2023, more than 24 projects with a total of more than 8,000 units are expected to be launched.”
Ling is now projecting new home sales of 8,500/9,000/9,500 units for FY2022/FY2023/FY2024. “For the private resale segment, we project 14,000/13,000/15,000 for FY2022/FY2023/FY2024. Projection for HDB resale transactions has also been adjusted to 28,000/26,000/27,000 units for FY2022/FY2023/FY2024.”
As at 3.20pm, shares in APAC Realty are trading 0.5 cents higher, or 0.88% up, at 57 cents.