APAC Realty is proxy to strong residential volumes, notes RHB Group Research analyst Vijay Natarajan, as new home sales here hit an eight year high in January.

Natarajan is maintaining “buy” on the company with a target price of 55 cents. 

APAC Realty, which owns the ERA property agency here, reported earnings of $16.3 million for the financial year ended Dec 31, 2020, up 17.8% over the preceding FY2019. Revenue in the same period was $395.1 million, up 6.9% y-o-y.

“FY2020 net profits comfortably beat consensus aided by a rebound in residential volumes and government grants,” says Natarajan in a Feb 24 note. 

APAC Realty is well positioned to benefit, with the group commanding approximately 33% market share of total residential transactions, says Natarajan, adding that APAC’s FY2021F price-to-earnings ratio of 9.7x is 15% lower than the P/E of its closest peer Propnex, based on the FY2021 Bloomberg estimate of 11.3x.

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See: APAC Realty reports FY2020 earnings of $16.3 mil, up 17.8%

The company’s growth in net profit was driven by a strong recovery in residential sales in 2H2020 and a government grant under the Jobs Support Scheme of $1.9 million. 

FY2020 private new home sales (excluding executive condominiums) was up 0.7% y-o-y to 9,982 units and private resale volume rose 18% y-o-y to 10,927 units.

“For FY2021 we expect new sales (0-5% higher) and resale volume (0-10% higher) to remain robust, underpinned by ultralow interest rates and economic recovery,” says Natarajan.

He expects the company’s FY2021F net profit, excluding one-off government grants to grow by 8%. 

See also: APAC Realty changes use in IPO proceeds

APAC announced a total dividend of 2.5 cents for FY2020, up from 2.0 cents in FY2019, translating into a pay-out of 54.3%. Natarajan expects similar dividends for FY2021.

Based on its internal estimates, ERA secured an overall residential market share of some 33.3% in FY2020, up from 32.9% the year before. While its new sale market share was slightly lower for FY2020 at 31.3% (FY2019: 34.6%), it gained market share in the buoyant private resale market FY2020 of 36% (FY2019: 33.3%) while maintaining its leadership position in the HDB resale market. 

ERA Singapore’s agent count has also jumped to 7,771 agents as of end FY2020 (FY2019: 6,967) with agent market share of approximately 26% from 23% last year. For FY2021F, the company has secured marketing agent role for 24 projects (8,802 units) similar to the one in FY2020. 


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ERA’s overseas entities (Indonesia, Thailand, Vietnam and Malaysia) were impacted by a market slowdown due to Covid-19 and were slightly loss-making for FY2020, notes Natarajan. Management, however, remains optimistic on the longer-term prospects of these markets and sees it as a long-term diversification strategy to mitigate the cyclicality of Singapore market, he adds. 

“We have revised up FY2021-2023F net profits by 10-12% factoring in strong momentum in residential sales but have also raised our weighted average cost of capital (WACC) by 40 bps to 8.5% to factor in an eventual risk of cooling measures.”

Meanwhile, DBS Group Research analyst Ling Lee Keng has increased their target price to 61 cents from 53 cents, maintaining "buy" on the company. 

In a Feb 24 note, Ling deems the counter's valuations to be attractive, and overall market transaction value is expected to continue to grow.

"As of Dec 31, 2020, there were 26,426 unsold units (including ECs). The vacancy rate of completed private residential units has increased to 7.0% as at Dec 31, 2020, from 5.5% a year ago. Apart from the 26,426 unsold units (including ECs) with planning approval as at Dec 31, 2020, there is a potential supply of 4,700 units (including ECs) from Government Land Sales (GLS) sites that have not been granted planning approval yet."

As at 12.35pm, shares in APAC Realty are trading 1.5 cents higher, 3.53% up, at 44 cents.