CGS-CIMB Research analyst Lock Mun Yee has reiterated “add” on APAC Realty CLN with a lower target price of 57 cents from 70 cents previously as the company continues to invest for the future as well as grow its overseas footprint.
In her Oct 9 report, Lock cuts her FY2023, FY2024 and FY2025 earnings per share estimates by 39.2%, 41% and 39.4% respectively to factor in higher-than-projected marketing and personnel costs such as recruitment, on top of other additional expenses from its expansion into Vietnam and Indonesia.
She notes that investments to improve technological capabilities would likely keep IT costs higher in the near-term. This will likely lower CGS-CIMB’s forecasted ebit margin estimates to 2.9%-3.1% versus 4.6%- 5.1% previously.
Furthermore, Lock believes APAC Realty’s overseas division would likely continue to show a small loss for the rest of FY2023, dragged by the slower Vietnam property market YTD.
“That said, we believe APAC Realty could deliver a stronger h-o-h patmi in 2HFY2023. New home sales rebounded in 2QFY2023, with 4,009 units sold in April to August versus 1,318 in 1QFY2023. Given the one to two quarter lag in billings, we estimate the brokerage commissions from the higher transaction volumes should start to filter in from 2HFY2023,” says Lock.
Looking ahead, CGS-CIMB expects overall new home sales to remain relatively flat compared to last year at 7,000 to 8,000, which should continue to benefit APAC Realty.
See also: Test debug host entity
Lock highlights that APAC Realty has continued to increase its Singapore agent count, which should enable it to broaden its market share. “Based on our checks on the Council for Estate Agencies website, an estimated 9,033 agents are registered with ERA as at Oct 9, versus 8,839 agents as at end-June.”
Meanwhile, on Sept 28, APAC Realty announced a new foray into Australia through an ERA Master Franchise Agreement with Queensland 888. The latter will operate as ERA Queensland with an initial team of 17 agents across three offices in Brisbane, focusing on off-plan projects, high-end prestige properties, general residential, property management and sale of leasing commercial properties.
CGS-CIMB believes this move will enable APAC Realty to create brand awareness in Australia, with contributions likely to remain minimal in the immediate term, largely coming from franchisee fees.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
Following the 15% share price decline since mid-August, Lock believes much of the lower y-o-y patmi performance is already reflected in APAC Realty’s current share price. The stock will likely be supported by its projected FY2023 dividend yield of 5.9%, she adds.
As at 10.06am, shares in APAC Realty are trading flat at 51 cents.
