SINGAPORE (July 13): RHB is maintaining its “buy” call on APAC Realty, but with a lower target price of 77 cents from $1.35 previously.
This was due to the group’s share price falling by 50% since hitting a peak of $1.28 earlier in March.
In a Thursday report, analyst Vijay Natarajan says, “We believe this is due mainly to two key factors – the listing of its Singapore peer Propnex in July that resulted in investors taking profit and switching out of APAC into Propnex, and the unexpected implementation of property cooling measures that dampened market sentiment.”
Although volumes are expected to drop due to the new cooling measures, the analyst believes that the impact on agencies will be mitigated by several factors.
Firstly, developers have been more “realistic” in their pricing expectations and are offering 5-10% discount in new launches to counter the measures. This should attract more first time buyers.
Channel checks have also showed about 200 more units have been sold this week in new launches post measures, which is encouraging.
Secondly, developers are offering higher agency commissions in a few of the new launches, increasing to 3-4% from 1.5% previously.
However, developers are bound by the stringent 5-year timeline to sell all units in projects. In the event that they fail to, they would have to pay stiff ABSD penalties of 15%.
Meanwhile, the group’s management has said that it plans to diversify its income by expanding into Indonesia and China.
“Post the recent measures, we now expect overall transaction volumes (both primary and secondary) to fall by 10% in 2018 (from 12-15% increase) and have assumed a further 5% fall (from 1-3% increase) in transactions next year,” says Natarajan.
And with every 5% change in volumes, the analyst’s expects an 8% impact on his FY18 net profit forecast.
Nonetheless, the stock is trading at an attractive FY18 yield of 6%, based on a 60% payout ratio. Gearing is also expected to remain low at 1.5% upon the group completing its acquisition of a commercial property by August.
See: APAC Realty to acquire Toa Payoh commercial property for $72.8 mil for new regional HQ
As at 2.40pm, shares in APAC Realty are trading at 61 cents or 9.5 times FY18 earnings, representing a 25% discount to its global peers.
