SINGAPORE (Aug 31): RHB Research is keeping its “buy” call on APAC Realty with an unchanged target price of 77 cents, on the back of the entry of the real estate services firm into China.
“APAC’s entry into Hainan market offers a stepping stone to tap into the vast potential of China’s real estate market,” says analyst Vijay Natarajan in a Friday report.
APAC Realty on Aug 29 entered a joint venture to conduct brokerage and real estate businesses in China’s Hainan province.
It holds a 40% stake in the JV, ERA Hainan Estate Marketing Co, which will also establish training and licensing programmes for real estate agents in Hainan.
See: APAC Realty enters brokerage and resale market in Hainan with 40%-owned JV
“While near-term earnings contribution may not be significant, the move provides lot of intangible benefits in terms of understanding the dynamics of real estate agency business in China, and potentially cross-selling its Singapore projects to Chinese clients,” Natarajan says.
“In our view, these diversification strategies are pivotal for long-term earnings sustainability and will help mitigate cyclical vagaries of Singapore’s real estate market,” he adds.
RHB’s target price on APAC represents an upside of 33%.
According to Natarajan, the stock currently trades at a “reasonable” price-to-earnings (PE) ratio of 8.8 times for FY18. Meanwhile, its closest peer, PropNex, is trading at 12.7 times historical FY17 PE – a 60% premium to APAC’s FY17 PE.
As at 11am, shares in APAC Realty are trading half a cent lower at 57.5 cents, implying an estimated dividend yield of 6.8% for FY18.
