SINGAPORE (Nov 18): Analysts see a glimmer of light at the end of the tunnel for APAC Realty, despite a disappointing 3Q for the real estate agency on the back of a slower-than-expected recovery in the residential property market.

APAC Realty, which operates the ERA brand, saw its earnings nearly halved to $3.5 million for 3Q19 ended September, from $6.5 million a year ago, as total revenue shrank 14.1% to $98.6 million during the quarter.

The decline was largely attributed to the impact of property cooling measures introduced in Singapore in July last year, as well as a volatile global economic landscape that has shaken market sentiment and buyer interest.

Shares in APAC Realty have fallen by close to 25% since its recent peak at 67 cents in May 2019. The counter closed at 50.5 cents on Nov 16.

“3Q19 and 9M19 earnings were below expectations, dragged by private resale volumes and higher marketing expenses. While overall market transaction activities are showing signs of a healthy 3Q pick-up, private resale activity remains slow,” says Vijay Natarajan, an analyst at RHB Group Research, in a Nov 14 report.

Natarajan is keeping his “buy” call on APAC Realty, on the back of prospects of a rebound in market sentiment as well as an expected dividend yield of close to 5% in FY19F.

However, he has cut FY19-21F net profit forecasts by 13-14% to reflect lower market share assumptions and higher marketing expenses. Consequently, the analyst has a lower target price of 60 cents on APAC Realty, down from 65 cents previously.

In particular, Natarajan expressed that he was “slightly concerned” over ERA’s decline in market share. He notes that ERA’s market share by transaction value had dipped to 31.9% in 3Q19 and 31.7% in 9M19, compared to 36.4% in FY18.

“We believe this is due to increased competition and the appointment of more agencies by developers amidst challenging market conditions,” Natarajan says, adding that the decline was mainly due to lower market share in new launches.

However, CGS-CIMB Research notes that APAC Realty’s pipeline of project marketing appointments continues to be healthy.

In a note on Nov 13, lead analyst Ervin Seow notes that the Urban Redevelopment Authority (URA) reported a 40% q-o-q jump in sales volume from new launches.

“[This] leads us to maintain our expectations of a stronger 2H19F extending into FY20F, depending on when options are exercised, as sales are gradually recognised over the next 1-2 quarters,” he says.

“We think key catalysts for the stock could be a stronger recovery in transaction volumes and a higher proportion of potential buyers exercising their options to purchase,” Seow adds.

CGS-CIMB is keeping its “add” recommendation on APAC Realty, and raising its target price by 10% to 66 cents.

DBS Group Research analyst Ling Lee Keng agrees that there is ample supply in new residential projects for APAC Realty to register an improvement in primary sales.

“ERA has been appointed the marketing agent for 59 projects with about 20,000 new home units to be launched in FY19/20F, as compared to about 27 new project launches totalling about 13,000 units in 2018. There are also about 34,089 (including ECs) unsold units as at end-3Q19,” Ling says.

However, the analyst professes to be “less optimistic” in the take up rate of new launches as well as transaction activities in the resale market, compared to other market watchers.

DBS is maintaining its “hold” call on APAC Realty with a slightly lower target price of 46 cents, down from 48 cents previously.

“We have cut FY19F/FY20F earnings by 17%/23% to account for the still weak secondary market and also lower margins,” Ling says.

“Though the take up rates for new launches is expected to be slower, this should be partly offset by a bigger base with more project launches,” the analyst adds.

According the RHB valuations, shares in APAC Realty are trading at an estimated price-to-earnings (PE) ratio of 12.1 times, a price-to-book value (P/BV) of 1.2 times, and a dividend yield of 4.9% for FY19F.