SINGAPORE (Aug 8): DBS Group Research has upgraded real estate services provider APAC Realty to “hold” from “fully valued”, but lowered its target price by 6% to 62 cents.
“We believe APAC’s current share price has already priced in the impact from the recent property cooling measures,” says lead analyst Ling Lee Keng in a report on Tuesday.
The way Ling sees it, market transaction activities are likely to be lower this year, and expected to stay flat in 2019. However, the analyst believes APAC’s healthy project pipeline in 2H18 and 2019 should provide some support.
But Ling warns that the en bloc market could potentially come to a standstill.
“The uncertainty and expected slowdown in sales velocity in 2H18 and potentially 2019 might lead to developers rethinking their land-banking strategy or even put a halt to this altogether,” she adds.
In the first seven months of this year, APAC’s ERA Realty Network, has launched 15 projects with a total of 8,625 units. Another 10 projects, or 4,383 units, are due to launch over the next five months. According to Ling, this “signifies growth potential for the group”.
APAC saw its earnings fall 9.3% to $7.7 million for the 2Q18 ended June, even as revenue jumped 24.2% to $122.0 million on the back of an increase in brokerage income from resale and rental of properties as well as new home sales.
However, the higher revenue was outpaced by a 29.9% rise in cost of services to $108.1 million during the quarter, due to a higher payout of commission to agents for new home sales.
See: APAC Realty posts 9.3% decline in 2Q earnings to $7.7 million on higher agent commission
“Market share is critical,” says Ling. “ERA’s market share based on transaction value for the private property segment increased from 26.9% in 2011 to about 37.5% in 1H18.”
“We believe that APAC is largely viewed by the market as a proxy to Singapore’s private and HDB residential transaction volumes and values. As such, any newsflow in relation to the Singapore residential market would have an impact on APAC’s share price,” she adds.
As at 11.29am, shares in APAC Realty are trading half a cent lower at 62.5 cents, implying an estimated price-to-earnings ratio of 9.6 times and a dividend yield of 6.2% for FY18.
