Analysts have trimmed their target prices and earnings forecasts for APAC Realty to reflect the slower property transaction environment on the back of the cooling measures announced last December.
DBS Group Research, RHB Group Research and CGS-CIMB Research analysts have lowered their target prices to 67 cents, 75 cents, and 93 cents, respectively. Their previous target prices are 88 cents, 90 cents and $1.
RHB’s Vijay Natarajan, who has a “hold” call on APAC Realty says the recent hike in additional buyer stamp duties and property taxes is expected to have a negative impact on investment demand and high-end property purchases.
“In addition, the anticipated sharp increase in interest rates also poses a threat but is mitigated by strong underlying demand fundamentals such as a strong jobs data and household balance sheet. Overall, we expect new home sales to fall 30%-40% y-o-y and private and Housing and Development Board (HDB) resales to decrease by 10%-30% y-o-y,” he adds.
The property cooling measures led APAC Realty to expect its transaction volumes for private and HDB resale segments to potentially decline by 15%-23% y-o-y in FY22F, CGS-CIMB’s Lock Mun Yee highlights. The company anticipates increases of 1%-3% in private property prices and 4-8% in HDB resale prices due to limited new private supply and delays in completion of new HDB apartments.
While its near-term share price performance is likely to be impacted, Lock believes that APAC Realty’s share price is likely to be supported by its projected high dividend yield of 9.6% based on a 75% payout ratio.
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DBS analyst Lee Keng Ling concurs, pointing out that APAC Realty has a proven resilient business model, allowing the group to maintain profitability during economic downturns and property market cycles.
Its average net profit for 2010 to 2020 is $17 million. Although the net profit was down in 2014 and 2015 by about 30% y-o-y, it rebounded strongly in 2016. “Post the 2018 cooling measures, net profit in 2019 was down 43% y-o-y but recovered in 2020,” says Lee.
Based on its internal estimates, APAC Realty’s overall residential property market share (excluding rental) improved to 40.3% last year from 39.6% recorded in FY20. This was mainly driven by an increase in its new home sale market share to 33.7%.
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Natarajan views this as positive as the segment commands two times the margins versus the resale segment. “With management investing heavily on training and technology tools to arm its agents, we expect APAC Realty to maintain its market share. Management has also set a target to increase its agent count to 10,840 by 2025, representing a 10% CAGR.”
He also notes that the company is broadening its income stream, having recently set up a capital market and investment sales division to deal with big-ticket assets of high-net-worth individuals, family offices, developers, REITs and institutional investors.
The move is aimed at tapping the strong sales momentum in the shophouse, industrial and commercial segments. APAC Realty will also build on its overseas expansion in Indonesia, Malaysia, Vietnam and Thailand.
As at 10.17am, shares in APAC Realty are trading 1.5 cents higher or 2.22% up at 69 cents.
Photos: Albert Chua/The Edge Singapore
