APAC Realty - DBS Research 2022-09-30: Hit By Fresh Cooling Measures

• Barely a year after the last round of cooling measures announced in December 2021, the government has introduced several fresh measures to cool the property market, including new restrictions to curb quantum and taper demand.
• Refer to the MAS-MND-HDB joint press release. This time round, the measures are more targeted at the HDB segment while the reduction in the total debt servicing ratio (TDSR) would reduce affordability and also affect the private property market. The HDB resale index has gained 5.2% since December 2021, vs a 4.2% gain for the overall private residential index.
• ERA has a 41.8% market share as at 1H22 in the HDB resale segment. About one-third of its revenue is generated from this segment. The balance two-thirds is split between private resale and new launches. Contribution from each segment varies, depending very much on the new launch pipeline.

Impact on APAC Realty’s profitability has been short-lived in the past but expect a prolonged impact this time round.

• APAC Realty (SGX:CLN) has a proven resilient business model, allowing the group to maintain profitability during economic downturns and property market cycles. Average net profit for 2010 to 2020 is S$17m.
  • APAC Realty's net profit in 2014 and 2015 was down about 30% y-o-y but rebounded strongly in 2016.
  • Post the 2018 cooling measures, APAC Realty's net profit in 2019 was down 43% y-o-y but recovered in 2020.
• However, this time round, with the two rounds of cooling measures announced less than a year apart, the impact could be harder and net profit could take a longer time to rebound.
• The impact on FY22F earnings is more muted, mainly affecting the resale and HDB segments as there is a lag of a few months in the booking of revenue from the transaction date for the new launch segment.

We have cut our transaction volume projections for the various segments.

• We are now projecting new home sales of 8,500/7,000/8,000 units for FY22F/23F/FY24F, vs our previous projection of 9,000/10,000 for FY22F/23F.
• For the private resale segment, we project 14,000/11,000/12,000 for FY22F/23F/FY24F, down from our previous expectation of 15,000 and 16,000 units for FY22F and FY23F respectively.
• Projection for HDB resale transactions has also been lowered by 4-15% to 25,500/23,000 units for FY22F/23F.

APAC Realty – Earnings forecast & Recommendation

• We have revised down FY22F/23F earnings forecast for APAC Realty by 9%/42%, on the back of our lower transaction volume assumption as a result of this new set of cooling measures.
• Our target price for APAC Realty is reduced to S$0.41 (previously S$0.67), pegged to ~10x FY23F earnings, equivalent to its average 4-year average P/E.
• Downgrade our rating for APAC Realty to FULLY VALUED from HOLD, as we are only expecting a slight recovery in 2024.