RHB Group Research’s Vijay Natarajan has maintained his “buy” rating on APAC Realty and raised his target price to 55 cents, up from his previous figure of 50 cents.
Natarajan noted Singapore residential volumes have staged a strong rebound in 3QFY2020, with recovery seen across both primary and resale markets.
Furthermore, he says “the stock’s current price-to-earnings ratio (P/E) of 10x is not expensive… when compared to low-mid teen levels typically seen during market upcycles.”
He expects the strong recovery in residential market volumes are likely to sustain, as private new sales have rebounded sharply since June, after the gradual easing of restrictions, with y-t-d (October) volumes growth registering at only 5% below that of last year.
Similarly, private resale and HDB resale volumes have also bounced back and are down only 3% and 2% y-o-y respectively as of 9MFY2020.
Natarajan said “The strong volume recovery has well surpassed our and market expectations and has been driven by ultra-low interest rates, HDB upgrader demand and Government support measures.”
While Urban Redevelopment Authority’s (URA) latest move to clamp down on reissue of options has led to about a 5-10% reduction in demand, he does not expect any significant reduction in transaction volumes in the coming months.
As such, he has revised his overall transaction volumes assumptions, and now expects a 5-10% decline for 2020, up from an expected 25-30% decline. For 2021-2022, he assumes a “flattish to slight growth” in volumes.
Turning to subsidiary ERA, Natarajan noted it commands about 33% residential market share, and “is well positioned to ride on this recovery.”
ERA achieved a 33% market share of overall residential market transaction by value in 9M20 compared to 32.1% in the same period last year.
In terms of transaction volumes, ERA has a 28.9% market share, - up from 28.3% in 9M19 - of new homes (private and executive condos) and 42.2% of the resale market, as compared to 40.3% in 9M19.
He also said that ERA is enhancing its efforts to prepare for the future, including investing $2.4 million in proptech companies such as Dots Connected (which owns and operates UrbanZoom), SoReal Prop, Turning-Point and Fang.
In July, ERA also secured the exclusive listing rights to list Singapore properties on Fang.com, a leading property portal in China to tap into growing Chinese demand
It also entered into a partnership with Matterport to provide its sales team a fast, convenient and low-cost method to capture 3D virtual tours of client properties.
As at 2.53pm, shares of APAC Realty were trading at 42 cents, with a FY2020 price to book ratio of 0.99 and dividend yield of 4.7%.
