APAC Realty - DBS Research 2022-11-11: Adapting To Cooling Measures

APAC Realty - Adapting To Cooling Measures

  • APAC Realty (SGX:CLN)'s total revenue for 9M22 was down 3.2% y-o-y to S$523.9m. Despite the 43% y-o-y drop in units sold for the new home segment, revenue only saw a 0.6% decline to S$210.1m (accounts for 40% of total revenue), mainly due to the higher selling prices. resale and rental revenue eased 4.8% y-o-y to S$310.2m. For 3Q22, revenue was up 1.5% y-o-y and 5.7% q-o-q. See APAC Realty's announcement dated 09 Nov 2022.
  • APAC Realty's 9M22 net profit declined 8.5% to S$23.9m, above expectations, on the back of the lower revenue and net margins of 4.6% (vs. 4.8% in FY21). Net margin for 3Q22 dropped to 4% vs 4.5% in 2Q22 and 5.1% in 3Q21, mainly due to higher marketing-related expenses post the re-opening of the economy.
  • ERA’s overall market share eased slightly to 40.1% vs 40.2% for 9M21. New home and private resale segments were weaker while the HDB resale and leasing divisions were stable.

More new home supply in the pipeline for 2023.

  • ERA has secured marketing mandates for 13 projects with a total of 3,642 units launched so far. Another two more projects – Hill House and Tenet – with a total of 690 units are expected to be launched in 2022. For 2023, more than 24 projects with a total of more than 8,000 units are expected to be launched.
  • Period of adjustment to cooling measures getting shorter. The knee-jerk period for the cooling measures implemented in 2013 was about four years. Notably, net profit for APAC Realty only managed to reach the pre-measure level in 2017.
  • Meanwhile, the adjustment period became shorter during the rounds of cooling measures in 2018 and 2021, to about one to two quarters, using the Private Property Price Index as a gauge.

Expect a weaker 4Q22 and 1Q23, as the impact from recent cooling measures sets in.

  • We expect a weaker 4Q22 and 1Q23, as the impact from the latest round of cooling measures introduced on 30 September 2022 sets in. Based on historical records, net profit for APAC Realty declined by about 30% to 40% following the implementation of major cooling measures, but the rebound in the subsequent years was also strong.
  • This time round, the impact may not be so huge, on the back of:
    1. Strong supply pipeline for new launches of > 8,000 units in 2023, vs ~4,332 units launched in 2022;
    2. Higher selling prices.
  • The Property Price Index has surged ~8.2% year-to-date and prices could still remain high going forward, though the pace of the increase is expected to be moderate.

Resilient property market supported by strong project pipeline, stable prices, and demand. Upgrade APAC Realty to HOLD.

  • We are now projecting
    • new home sales of 8,500/9,000/9,500 units for FY22F/23F/24F.
    • private resale of 14,000/13,000/15,000 units for FY22F/23F/FY24F.
    • HDB resale transactions of 28,000/26,000/27,000 units for FY22F/23F/24F.
  • Earnings forecast for APAC Realty in FY22F/23F/24F were raised significantly on the back of the higher transaction volume assumption.
  • Since our downgrade to FULLY VALUED on 30 September 2022 post the introduction of the latest cooling measures, APAC Realty's share price eased 17% to a low of ~$0.50 three weeks later and has seen some rebound recently. The physical property market has also held up better than our earlier expectations.
  • Given the more resilient property market, now supported by a strong supply pipeline of new launches and stable prices, we raise our target price for APAC Realty to S$0.59 (previously S$0.41), pegged to 9x FY23F earnings, near its 4-year average P/E, and upgrade APAC Realty to HOLD from FULLY VALUED.

Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.

Lee Keng LING DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-11-11
SGX Stock Analyst Report HOLD UPGRADE FULLY VALUED 0.59 UP 0.410

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

Target prices by 2 other brokers at APAC Realty Target Prices.
Listing of broker reports at APAC Realty Analyst Report.

Relevant links:
APAC Realty Share Price History,
APAC Realty Announcements,
APAC Realty Dividends & Corp Actions,
APAC Realty News Articles


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