SINGAPORE (May 10): Singapore’s residential property market looks to be on the cusp of a multi-year recovery. And analysts say real estate services provider APAC Realty could be a better bet to ride on the boom.
Already, APAC Realty’s wholly-owned subsidiary, ERA Realty Network, has secured agent roles for a total of 21 property launches in 2018. Of these, 19 are expected to be launched over the next two quarters, with more than 10,000 units up for grabs, according to RHB Research.
“While its 2Q earnings are expected to be softer due to lower transactions in 4Q17/1Q18, we expect strong 2H transaction volumes driven by the launch of en bloc projects,” says analyst Vijay Natarajan in a Thursday report.
Based on RHB estimates, the 53 projects sold via en bloc since 2017 could potentially add more than 20,000 units to the launch pipeline.
“The higher expected prices for new launches are also likely to drive resale volumes as more investors hunt for bargain purchases,” Natarajan says.
RHB is keeping its “buy” call on APAC Realty with an unchanged target price of $1.35. The stock remains RHB’s top mid-cap pick.
“ERA’s strong market share of close to 38% in terms of transaction value in the Singapore residential market allows the agency to reach out to a diverse base of potential property buyers,” says DBS Group Research’s lead analyst Ling Lee Keng in a Thursday report.
“Successful sell-through rates for the various projects will set the stage for another record year in FY18F,” Ling adds.
However, the analyst points out that APAC Realty’s gross margin has fallen by 2.9 percentage points to 12.2% for 1Q18.
This was “mainly due to higher payout to agents as they gradually move up the commission scale,” Ling says. “ERA has also adjusted its commission structure to align with the industry standard.”
After factoring in expectations of lower gross margin ahead, DBS has cut its earnings forecast for FY18-19F by 6-7%.
As such, DBS is keeping its “buy” recommendation on APAC Realty, but lowering its target price to $1.32, from $1.42 previously.
“Fundamentally, we believe APAC [Realty] is in a strong position to tap the ongoing boom in residential sales and we see the recent [share price] weakness as a buying opportunity,” says RHB’s Natarajan.
In addition, he notes that APAC Realty has a net cash position of $64 million as at end March.
“Management has plans to deploy the cash and grow the business via potential acquisitions at its Indonesian franchise, the acquisition of an office building in Singapore to consolidate its business and save on rental costs, and the acquisition of a real estate support services business, which could add stability to its non-recurring income stream,” Natarajan says.
APAC Realty reported a 46.8% jump in 1Q18 earnings to $5.9 million, as revenue surged 56.7% to $105.2 million on the back of higher contributions from real estate brokerage fees and related services.
See: APAC Realty's 1Q earnings surge 46.8% to $5.9 mil on residential market recovery
As at 11.50am, shares of APAC Realty are trading 1 cent higher at $1.04. According to RHB valuations, this implies an estimated price-to-earnings ratio of 12.3 times and a dividend yield of 4.9% for FY18.
