Analysts at RHB Bank Singapore and DBS Group Research are keeping their respective "neutral" and “hold” calls on APAC Realty CLN following the company’s results for the FY2023 ended Dec 31, 2023. On Feb 23, APAC announced its full-year earnings of $10.6 million, 9.9% lower y-o-y, and a continued fall for its second year running.
With this in mind, RHB analyst Vijay Natarajan has lowered his target price to 44 cents from 47 cents previously, while DBS analysts Tabitha Foo and Derek Tan have lowered their target price to 48 cents from 53 cents previously.
In his March 8 report, Natarajan understands that APAC Realty had a “challenging” FY2023, with the easing in Singapore’s residential market largely leading to the company’s decline in earnings.
He adds: “While residential market transactions should rebound slightly this year on higher supply, demand remains selective amid high interest rates.”
The company has also been investing in technology and overseas markets which have been a near-term drag on earnings, although Natarajan understands that these investments “will likely bring benefits” in the long run.
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For FY2024, he expects transaction volumes to pick up slightly, mainly driven by a larger estimated project pipeline of 34 new launches.
“For FY2024, we expect new private home sales (excluding executive condominiums) to grow 10% to 15% y-o-y, to 7,000 to 7,500 units. Resale volumes, meanwhile, are expected to be similarly increased by 10% to 15% y-o-y amid more bargain-hunting and spill over demand from new launches,” writes the analyst.
Meanwhile, Natarajan believes that APAC Realty’s share price is supported by its total FY2023 dividend per share (DPS) of 2.5 cents, reflecting a 78% dividend payout ratio and around 6% yield, which is higher than the market average yield of around 5.7%.
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On APAC’s subsidiary, ERA Singapore (ERA), the analyst understands that it has taken an approach of improving its market share and primary headcount, which has risen 6.6% y-o-y last year to 8,891 agents, with a target to reach 10,000 agents by the end of FY2024.
Natarajan also notes that APAC Realty’s overseas ventures “have been disappointing so far” with net losses of $1.5 million in FY2023, due to the lack of project launches in ERA Vietnam.
He writes: “ A turnaround is likely to be slow for overseas markets, with a breakeven expected only by FY2025, in our view.”
Overall, the RHB analyst tweaks his FY2024 net profit estimates with a 4% increase, while reducing his FY2025 net profit estimates by 3%, through adjusting his forecasted sales volumes.
Key drivers noted by Natarajan include the resurgence in Singapore real estate transaction volumes, growth in the company’s market share and agent network, as well as growth from other market segments and its overseas business. Conversely, key risks include regulatory and policy risks, disruption from advancements in technology, and a loss of market share and margin reductions from rising competition.
Meanwhile, DBS’s Foo and Tan anticipate limited growth in transaction volume for this year, due to lower foreigner and investor participation. Other possibilities for limited growth include potential buyers taking more time to assess their options due to a wider array of project launches, as well as borrowing limits and macroeconomic uncertainties.
They write: “With new sales momentum likely to be slower than we initially expected, we expect the less favourable product mix to continue weighing on APAC Realty’s margins.”
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The analysts also echo a similar sentiment on APAC Realty’s overseas ventures, noting that they can “only expect a meaningful contribution” from FY2025 onwards.
Following this, they have lowered their assumption for new home sale and resale transaction volumes for FY2024 to 8,000 and 13,500, respectively, as they expect modest growth this year.
Consequently, Foo and Tan have cut their FY2024 earnings estimates by around 9%, while their target price is pegged to 11 times price-to-equity ratio (P/E), which is close to the four-year average.
Additional risks noted by the pair include a weaker macroeconomic environment and a rise in unemployment rates.
As at 1.10 pm, shares in APAC Realty are trading at 0.5 cents higher or 1.22% up at 42 cents.
