DBS: APAC Realty Ltd – Hold Target Price $0.67

Results Analysis: Healthy 1H22 results but expect a weaker 2H22 on lower property transaction activities

• Healthy 1H22, on resilient property market supported by strong demand from local buyers and foreign investors, amidst global challenges
• Lower property transactions in 1H22 though prices higher
• Slight drop in ERA market share to 30.6% in 1H22 for the new homes market, vs 32.3% in 1H21; overall market share of 40.0%
• No change in forecasts, maintain HOLD with S$0.67 TP

Healthy 1H22, on resilient property market supported by strong demand from local buyers and foreign investors, amidst global challenges. APAC Realty reported a 4.4% y-o-y decline in revenue for 1H22 to S$342.6m, a healthy set of results amidst challenges including rising uncertainties on the back of the elevated inflation and higher interest rates. The marginal decrease in 1H22 revenue was largely attributed to lower property transactions completed during the period. Revenue from resale and rental of properties declined 9.6% y-o-y to S$199.0m in 1H22. This was partially offset by higher revenue from new home sales of S$139.3m, an increase of 4.2% y-o-y. Gross margin increased slightly to 10.3% from 9.8% in 1H21, due to higher contribution from new home sales, which commands better margins. Net profit of S$16.7m (-2.1% y-o-y, -9.0% h-o-h) for 1H22 accounts for 71% of our full year numbers, inline as we are expecting a much weaker 2H22 due to an expected drop in transaction activities. Net margin of 4.9% in 1H22 is comparable to the 4.8% in FY21.

An interim DPS of 3.5Scts was declared, representing a payout ratio of 75% based on 1H22 net earnings. In 1H21, the group declared an interim DPS of 3.5Scts and a special DPS of 3.0Scts.

Lower property transactions in 1H22… 1H22 saw a decrease in transaction volume in the new private residential, private residential resale and HDB resale markets following the cooling measures rolled out by the authorities in December 2021. New homes segment saw the steepest drop of 40.2% y-o-y, largely due to fewer new home launches in 1H22.

Transaction Volume

…. but higher prices. Prices, however, continued to climb higher. The recent Urban Redevelopment Authority (URA) data showed that prices of private residential property grew 3.5% in 2Q22.  HDB prices have also increase by 2.8% in the same period.

2Q22 Singapore Property Market

Appointed marketing agent for 25 new projects. ERA was appointed marketing agent to 25 new home projects with more than 8,200 units, as compared to 23 projects with 8,428 units in 2021.

Lower market share. ERA’s estimated share of the new homes market was 30.6% in 1H22 compared with 32.3% in 1H21. Overall, ERA ended 1H22 with a 40.0% share of Singapore’s residential property market, delivering 10,466 property transactions in 1H22, compared to 13,290 property transactions in 1H21, excluding leasing transactions.

No change in forecasts, maintain HOLD with S$0.67 TP. We are maintaining our numbers as we expect a slower 2H22 on the back of the drop in transaction activities in 1H22. There is usually a time lag of about three to six months in booking of revenue from the transaction date. In 1H22, the private residential market saw c.30% y-o-y drop in transaction volume, with the steepest drop from the higher-margin new homes segment (-40%). The HDB resale segment also saw a 6.1% y-o-y decline in 1H22. Though demand remains strong, outweighing supply, especially for the new homes segment, this could be partly mitigated by the challenges of rising interest rates, higher inflation and rising land cost. Maintain HOLD with TP of S$0.67 for now. Will provide more updates, if any, after the briefing on Wednesday.