Jovi Ho Thu, Jun 23, 2022
APAC Realty’s share price may have fallen 17% ytd due to a lowball offer by Morgan Stanley Private Equity (MSPE), but Singapore’s property market will remain resilient, says RHB Group Research analyst Vijay Natarajan.
“We see value emerging at APAC — the stock is trading at 9x FY2022F P/E, with a handsome 8% yield offering downside support,” he writes.
In a June 23 note, Natarajan is upgrading APAC Realty to “buy” from “neutral”, with an unchanged target price of 75 cents, which implies a 25% upside.
APAC Realty’s 1QFY2022 net profit exceeded Natarajan’s expectations. Net profit grew 20% y-o-y to $9 million, driven by strong contributions from the new home sales segment, which clocked revenue growth of 42% y-o-y.
“This segment’s strong numbers were mainly due to the robust transaction activity in 4QFY2021 before the implementation of cooling measures in mid-December 2021 — there is a time lag of two to six months in earnings recognition for this segment,” says Natarajan.
New home sales have since plunged since the start of the year on the back of limited supply, falling 40% ytd below last year’s figures. “This, in turn, should result in a 30%-40% plunge in 2QFY2022 net profit,” says Natarajan.
In 1QFY2022, APAC maintained its overall 37.9% market share (as a percentage of sales) of total Singapore residential property transactions.
‘Opportunistic’ offer
With 64.8% acceptance, MSPE’S offer closed on June 10 with a 65% effective stake. MSPE, in April, announced its acquisition of an approximately 60% stake of APAC Realty from Northstar, at 57 cents a share. Northstar has been a major shareholder since 2013.
“The offer, in our view, was an opportunistic one that came on a market slowdown posed by December 2021’s cooling measures and limited new home supply,” says Natarajan.
Following the April 25 announcement, shares in APAC Realty plunged from some 80.5 cents to 66 cents by the end of the week.
That said, Natarajan remains positive on APAC Realty’s mid- to long-term outlook, on the back of its leading agency position in the stable Singapore property market and its master franchise rights for 17 countries in the Asia Pacific.
The entry of MSPE, one of the largest investment managers globally, with AUM of US$1.6 trillion as at end-December 2021, is also likely to bring in more M&A opportunities for the company, and will help deepen its Asia Pacific expansion plans, says Natarajan.
2023-2024 outlook
Higher government land sales and a pick-up in the en bloc market are positives for transactions in the FY2023-2024, says Natarajan.
The government is raising the confirmed list of the supply of residential properties for 2H2022 by 26% h-o-h, amid robust demand and sharply declining inventory levels.
En bloc market transactions are also showing nascent pick-up signs, says Natarajan, with the recent sale of Lakeside apartments at a 14% premium over the reserve price, and an increase in the pipeline of collective sales.
Hence, Natarajan lifts FY2022-2023 earnings by 2% after tweaking sales volume assumptions.
“APAC’s ESG score of 2.9 out of 4.0 (based on our proprietary in-house methodology) is a notch below our country median, so we have apply a 2% discount to our DCF-based intrinsic value to derive our target price.”