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Results Analysis: 9M21 results beat expectations, driven by the red-hot property market

  • Downgrade to HOLD, TP reduced to S$0.88, positives priced in 
  • 9M21 results beat expectations, driven by the red- hot property market
  • Higher market share for most segments; secures marketing roles in 18 projects next year vs 20 this year
  • Expecting weaker new home sales to weigh on FY22F earnings; resale and HDB to stay stable

9M21 results beat expectations. APAC reported a 139% y-o-y surge in 9M21 net profit to S$26.1m on 115% jump in revenue to S$537m, exceeding our expectations. For 3Q21, net profit of S$9.1m was up 162% y-o-y (-5.2% q-o-q) while revenue gained 81% y-o-y but declined 13% q-o-q. The strong performance in 9M21 was largely due to an increase in transaction volume of residential properties in the new homes and resale segments, which was driven mainly by local buyers and HDB upgraders amid strong global liquidity and the low interest rate environment.

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Overall Market Transactions

Strong surge in sales of new homes and resale, as compared to last year. For 9M21, new homes sales (excl. ECs) increased 36% y-o-y to 10,009 units as compared to the 0.7% y-o-y increase for the whole of 2020. Including ECs, total units of 11,868 units sold exceeded the 10,940 units for the whole of 2020. Private residential resale market sales increased 137% y-o-y to 15,623 units, vs the 18% y-o-y gain in 2020. HDB resale market also reported an increase of 35% y-o-y to 23,077 units.

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Higher market share for most segments. Market share for ERA in 9M21 improved for most segments, except for the private resale segment. Overall market share (excluding rental) improved to 40.1%, from 38.7% in 9M20. 

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ERA secures marketing agent roles in 18 projects for 2022. ERA has secured marketing agent roles in 18 projects for 2022, representing close to 6,000 units in total. In 2021, ERA secured 20 projects with 8,237 units in total. Out of this, 16 projects were launched, with four more (Perfect Ten, Canninghill Piers, The Commodore, Mori) expected to be launched soon. 

In the enbloc space, ERA has been appointed the marketing agent for Chuan Park, Choon Kim House in Serangoon, four more condominiums valued at S$3.1bn and another site in the Chinatown area valued at about S$1.8bn. 

Earnings and Recommendations

Raised FY21F/FY22F earnings on higher transaction volume assumptions. We have raised earnings for FY21F/FY22F by 28%/12% as we increase the number of property transactions across all segments. We are now expecting new homes sales to reach 13,500 and 12,200 units in FY21F and FY22F respectively, from 12,000 previously for both years. For the private resale market, we project 18,000 units in FY21F and 16,600 in FY22F, up from 16,000 units.  

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Expecting weaker new homes; resale and HDB stable. The depleting inventory of unsold new launches as well as construction delays could result in fewer new launches available for sale. Hence, the new homes segment could be weaker after a stellar performance in FY21. The private resale market should still remain relatively stable vs the new homes segment, driven by a lack of supply of new launches, delays in BTO completion, and being a cheaper alternative to private new launches. The HDB resale segment is also expected to remain stable, barring any cooling measures. 

Downgrade to HOLD, TP reduced to S$0.88, positives priced in. Given the lacklustre growth outlook, we downgrade our recommendation on APAC to HOLD from BUY. At current level, we believe the positives are priced in. Share price has surged 118% since our upgrade in November last year. We upgraded APAC to BUY back then, as the property market was resilient amid the COVID-19 pandemic and valuation was also attractive at -1SD of its 4-year average.

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Our current TP is reduced to S$0.88 (previously S$1.05) pegged to a lower PE of 10x, its 4-year average, vs 14x (+1SD of its 4-year average). We have also rolled forward to FY22F earnings. Earnings could taper and move sideways in the next one to two years. Furthermore, the stock is at risk of de-rating if property cooling measures are announced. 

Risks: property cooling measures. With the property price index maintaining its uptrend, coupled with the recent record prices for new launches and land, we read such strong momentum with caution given possible actions to cool the strong demand for property.