936 Brokers' Digest

CGS-CIMB Research analyst Lock Mun Yee is reiterating an “add” call on real estate services provider APAC Realty with a target price of 53.8 cents, down from 60.7 cents previously.

In a June 2 report, Lock notes that new home sales year to date, inclusive of executive condominiums stand at 2,848 units or a year-on-year decrease of 22%. This accounts for 36% of the lower-end of the brokerages transaction volume estimates of 8,000 to 9,000 units for 2020.

According to the Urban Redevelopment Authority (URA), sales of new private homes during the “circuit breaker” period from May 1 to May 24 totaled to 322 units, or “slightly more” than 270 units recorded in April. The best-selling projects were Parc Clematis, Parc Esta, The Florence Residences and Treasure at Tampines, making up close to 44% of total sales in that period.

She acknowledges that effects of closed property showrooms during Phase One of Singapore’s post-circuit breaker reopening are likely to be significant. As such, Lock has taken to lowering her FY2020-2022F earnings estimate by 12.2-14.9% on slower market volumes.

“[This is] assuming that APAC Realty retains its market share of 36% in the primary home sale market and 33.4% for the private resale market, unchanged from FY2019,” says Lock.

She also says APAC Realty’s registered base has grown to 7,215 agents as at June 1, making it the second largest after Propnex by agent headcount. This gives it a market share of 23%.

“This should translate to an expanded marketing network in the medium term,” adds Lock. “A key catalyst for APAC Realty’s share price outperformance would be the ability to garner more market share going forward.”

Even with market sentiment still relatively weak, APAC Realty has secured a healthy pipeline of marketing appointments with 25 new projects — or 7,466 units — as of February to be launched this year.

In addition to the Singapore sales, Lock says APAC Realty’s regional expansion strategy could pay off. She recalls the group’s $1.5 million investment for a 38% stake in ERA Vietnam, which is profitable and had an estimated market share of 20% in Vietnam’s project marketing sector at the end of last year.

According to her, this will add to APAC Realty’s 6,500 agents across 114 member brokers in Indonesia and 420 agents across 22 member brokers in Thailand.

“This positions the group for robust medium-term growth as it leverages the faster-growing real estate markets in Southeast Asia,” says Lock. The company is now trading at a forward FY2020 price-earnings ratio of 10.6 times, and gives a yield of 4.8%. — Uma Devi

Starhill Global REIT
Price targets:
RHB “Buy” 63 cents
Daiwa Securities “Buy” 72 cents
DBS “Hold” 50 cents

Peer laggard set to attractive valuations: RHB

RHB Securities analyst Vijay Natarajan has upgraded Starhill Global REIT to “buy” from “neutral” with a lower target price of 63 cents. This is down 13 cents from its previous 76 cent call, Natarajan says in a June 3 note.

The REIT is currently trading at a price-to-book ratio of just 0.6 times, compared to a peer average of 1 and a sector average of 1.1. This makes it a “laggard among retail REIT peers in terms of valuation,” he says.

“We believe the reason for the valuation gap is due to market concerns on its exposure to high-end retail, Wisma Atria’s shorter remaining land tenure (41 years), and declining average retail rents. At current levels, we believe the negatives have been fully priced in”.

The gearing, at 36.7%, is well below the revised 50% threshold and there’s no near-term financing needs as well, says Natarajan. His view is despite the austere outlook for REITs, and comes from the REIT’s stability from the contributions of its anchor leases. These tenants account for nearly half of its rental income.

Starhill Global REIT’s portfolio comprises 10 properties in Singapore, Malaysia, China, Japan and Australia. Its Singapore properties include Wisma Atria and Ngee Ann City, located on the Orchard Road retail belt. In its recent 3QFY2019/2020 earnings ended March, the REIT recorded $35.2 million in net property income, down 11.1% from its $39.6 million in the previous year. This comes from the $13.7 million in rental rebates disbursed to eligible tenants.

Starhill Global has since announced on May 18 that it has set aside $18.1 million for approximately two months of rental rebates and property tax rebates in Singapore.

With government regulations requiring landlords to extend more support to small and medium enterprises and retail tenants whose businesses remain shut in phase one, Natarajan is looking at an additional $5-$10 million in disbursement.

Across the Causeway, its Malaysian assets under master leases have been offered some $0.4 million in rent rebates.

The REIT is in the midst of finalizing its rent relief packages for Australia. Based on calculations, Natarajan predicts a A$6 million ($5.78 million) disbursement, which translates to a 1.5 month rebate for each tenant.

However, these are said to be mitigated by the REIT’s two master leases — the Toshin master lease in Singapore (expiring in 2025) as well as long-term master leases for its Malaysia portfolio which accounted for 33% of its 3QFY2020 revenue.

Observing that the lessees are still in good financial shape, Natarajan does not foresee any defaults or delays in the payments for these leases.

Going forward he flags the possibility of a 5% decline in retail occupancy over the next two years, from its current 96.3% rate. This is due to the pressures of the pandemic, and it is lowering his forecast distribution per unit for FY2020 to FY2022 by 8 to 19%. — Amala Balakrishner

Penguin International
Price target:
PhillipCapital “Accumulate” 55 cents

Large cash hoard to help ride out choppy waves PhillipCapital has downgraded Penguin International to “accumulate” from “buy” with a reduced target price of 55 cents from 88 cents previously.

This came following Penguin’s business update in its recent annual general meeting (AGM), which forecasted a challenging outlook due to the Covid-19 pandemic and the collapse in oil prices.

In a June 3 report, analyst Paul Chew says: “The biggest worry will be trade receivables and inventory of vessels built to stock. During such a stressed environment, the risk will be elevated from customers defaulting payments and inventory becoming unsold.”

Charter rates for crew boats will be under pressure, as demand for new vessels is down and ferry customers will suffer from the pandemic.

In the 2016 downturn, Penguin swung into losses and revenues plunged by 72% y-o-y to $33.4 million. But the difference in this cycle compared to the previous downturns is that the company now has a larger net cash position of $60 million as at end 2019, versus $24 million as at end-2015. In addition, it has built up a more diversified business portfolio in terms of the types of vessels built.

“With such an uncertain earnings outlook, we will use price to book as a gauge to valuations. The 10year price to book average is 0.7 times, with a range of 0.5 to one time. Penguin can ride out the downtrend in the industry with their large cash hoard,” says Chew.— Samantha Chiew