CGS International analyst Lock Mun Yee is keeping her “add” call on APAC Realty CLN at a lowered target price of 45 cents from 54 cents previously after the company’s 1HFY2024 ended June earnings per share (EPS) of 1.15 came in 18.7% lower y-o-y.
Lock notes that this was due to “lower-than-expected topline performance”, with the gross profit margin during the period narrowing 1 percentage point (ppts) y-o-y to 9.2%.
She writes in her Aug 12 report: “Overseas operations, mainly in Indonesia and Vietnam, which accounted for around 1.6% of 1HFY2024 topline, dragged the group’s performance, posting a net loss, albeit smaller, owing to a slowdown in Vietnam’s residential market.”
To that end, APAC Realty’s EPS did not meet Lock’s estimate, forming 31.3% of her full-year forecast.
Meanwhile, the company’s profit after tax and minority interests (patmi) fell 18.7% y-o-y to $4.1 million on the back of lower gross profit from a product mix of the lower yielding resale segment. This was partly moderated by a reduction in operating expenses.
APAC Realty also generated lower new home sales commission of $57.9 million during the period, 21% weaker y-o-y due to a 31.8% y-o-y decline in new private and executive condominium sales volume to 2.484 units on the back of slow pace of new launches.
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Despite this, the company notes that its market share in this segment remained relatively stable on a y-o-y basis.
On the back of the slow start, Lock has lowered her FY2024 volume sales projections to between 5,000 and 6,000 from 7,000 to 8,000.
“Management indicated in its results presentation that there are 14 projects in the launch pipeline in 2HFY2024. If fully rolled out, this should bolster volume sales and revenue from new home sales from 2HFY2024, in our view,” adds the analyst.
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During the 1HFY2024, APAC Realty’s brokerage revenue from resale and rental grew 11.4% y-o-y to $203.6 million in the period due to higher transaction volumes in the private resale, HDB resale and private leasing segments.
The company's uptick in market shares across these segments in 1HFY2024 have also helped boost revenue contributions.
On APAC Realty’s 3.8% growth of agents to 9,225-strong from January to June, Lock writes: “This should bolster APAC Realty’s market share and boost resale and rental commissions in FY2024, in our view.”
Meanwhile, although overseas contributions remain small, APAC Realty notes that the operating environment in Vietnam has improved over the past months and the company has also moved into the Philippines through an ERA Franchise Agreement with Upper Room Realty in April.
Overall, Lock cuts her FY2024 to FY2026 EPS by 8.0% to 27.% on lower market volume transactions.
She concludes: “We believe the stronger 2HFY2024 launch pipeline, coupled with the recovery in the Vietnam residential sector, could provide some tailwinds for APAC Realty’s 2HFY2024 operating performance.”
Potential re-rating catalysts noted by the analyst include APAC Realty gaining primary and secondary residential market share through expanding its sales force, and improved earnings momentum from its Vietnam and Indonesia operations.
Conversely, key downside risks include the delayed recovery of the property market due to more property cooling measures, and a continued erosion of market share that would slow its earnings recovery.
As at 11.53 am, shares in APAC Realty are trading 0.5 cents higher or 1.35% up at 38 cents.
