SINGAPORE (Nov 9): DBS Group Research is initiating coverage on real estate brokerage APAC Realty with a “buy” recommendation and a target price of $1.03.
“APAC Realty offers a pure-play exposure to the recovering Singapore property market,” says lead analyst Derek Tan in a report on Thursday.
“We believe that the Singapore property market is entering the end of a period of over-supply amid a stable operating environment,” says Tan. “We see multiple catalysts for residential prices to head higher in the next two years.”
APAC Realty’s growth is expected to be driven by wholly-owned subsidiary ERA Realty, one of Singapore’s largest real estate agencies with more than 6,100 registered agents under its roof.
According to Tan, ERA’s market share was approximately 38% of transaction value in the Singapore residential market in 2016. Its market share has been climbing steadily, from 32% in 2015 and 29% in 2014.
“Having a sizeable agent base is important for ERA to perform well as it enables the agency to have a strong and wider reach to a diverse base of potential property buyers, renters and allows the group to capture a lion’s share of market transactions in Singapore,” Tan says.
“Sizeable scale and leading market share [are] a winning formula in our view,” he adds.
In addition, Tan points out that the group is led by an experienced management team, with an average of around 20 years of real estate experience.
“We project net profit to grow by a strong 34% in FY2017F and 14% in FY2018F, followed by another 7% in FY2019F, after 87% rise in FY2016 on the back of a strong pick up in transaction value in 2H2016,” says Tan.
As at 4.02pm, shares of APAC Realty are trading 1.5 cents higher at 90.5 cents, implying an estimated price-to-earnings ratio of 12.8 times and dividend of 3.9% in FY18.
