Supported by attractive valuations and yield
? 1Q22 net profit up 20% yoy to S$9m, making up 31% of our FY22F forecast.
? Higher share of resale/rental market offset by lower share of new home sales.
? Reiterate Add rating, with a lower TP of S$0.84.
1Q22 business update highlights
In its 1Q22 business update, APAC Realty reported revenue of S$171.1m (+12% yoy).
NPAT came in at S$9m (+20% yoy) and made up c.31% of our FY22F forecast. The better
performance was due to higher new home brokerage, partly offset by lower resale and
rental brokerage as well as other revenue. Gross profit rose 21.2% yoy to S$18.3m as
GPM remained relatively stable at 10.7%. Overall, APAC’s residential transaction market
share (excluding leasing) in 1Q22 remained stable yoy at 37.9%.
Decline in resale commissions largely from weaker market volumes
APAC generated S$92m, or c.54% of its 1Q22 topline, from commission income from
resale and rental of properties; the 4.6% yoy decline in resale and rental revenue was due
to a 23.6% and 8.5% drop in private and HDB resale market transaction volumes,
respectively, following the Dec 2021 property cooling measures. Meanwhile the rental
market also registered an 8.5% contraction in leasing activity. APAC managed to grow its
market share for private resale transactions in 1Q22 marginally yoy to 41.8%, as well as
lift its rental market share to 23.5%. However, it lost market share for HDB resale
transactions, from 38.9% in 1Q21 to 38.1% in 1Q22. APAC expects transaction volumes
for private and HDB resale segments to decline 15-23% yoy in FY22F due to adverse
impact from the Dec 2021 property cooling measures. It anticipates increases of 1-3% in
private property prices and 4-8% in HDB resale prices due to limited new private supply
and delays in completion of new HDB apartments.
Decline in market share for new home sales
APAC’s brokerage revenue from new home sales increased 42.2% yoy to S$77.2m in
1Q22, even as market transaction volumes declined 52.8% yoy due to the mining lag in
recognition of commission revenue for sales contracted in prior quarters. Meanwhile, it also
saw its market share for new projects slipping to 30.3% in 1Q22.
Reiterate Add rating
We cut our FY22-24F EPS by 4.8%-12.9% to reflect a moderated market share for project
marketing in those years. Accordingly, our TP dips to S$0.84, based on an unchanged
blend of net cash-adjusted P/E multiple and DCF valuation. We believe APAC’s share price
is likely supported by a projected FY22F dividend yield of 10.4%. Following the completion
of the mandatory general offer by NHPEA Ace Realty Company (NHPEA) in Jun 2022, we
believe NHPEA could undertake a strategic and operational review of the company, with a
view to realise synergies, economies of scale and cost efficiencies, and growth potential.
Potential re-rating catalysts: ability to further gain market share in both the primary and
secondary residential segments and identify new growth drivers. Key downside risk:
delayed recovery of the property market due to a weak macro outlook.