SINGAPORE (Feb 26): APAC Realty on Friday announced that its 4Q earnings were up by 59.7% to $7.9 million from $4.9 million, bringing FY17 earnings to $25.9 million, 63.1% higher than $15.9 million in FY16.
Revenue for the quarter was 62.5% higher at $129.7 million from $79.8 million last year, driven an increase in real estate brokerage fees and related services.
The group proposed a final dividend of 2 cents of FY17, which translates to an annualised dividend yield of 12% on the IPO price of 66 cents.
See: APAC Realty's 4Q earnings up 60% to $7.9 mil on higher revenue
Hence, RHB is maintaining its “buy” call on APAC Realty with a higher target price of $1.35. The group is also the research house’s top real estate mid-cap pick.
To recap, APAC Realty was one of RHB’s pick following the Budget 2018 announcement, as the group is expected to benefit from the rise of HDB resale transactions following the government’s announcement of higher Proximity Housing Grants (PHGs).
See: 7 stocks to shop as Budget 2018 fuels positive market sentiment
See also: Government revises Proximity Housing Grant (PHG) criteria to within 4km
Looking at the group’s results, FY17 earnings exceeded the estimates of RHB and consensus.
The group’s real estate brand, ERA, gained an overall market share of 0.4 percentage points to 37.9%.
In a Monday report, analyst Vijay Natarajan says, “We are heartened to see the market share growth, which came in despite growing competition and a slight reduction in agent count.”
The group’s 2018 outlook seems to be promising, according to Natarajan as ERA has secured agent role for about 20 new launches of about 11,269 units up to 9M18, higher than the total number of units secured in 2017.
“We expect more projects to be added to pipeline in 4Q18 as most of the en-bloc projects sold recently should be ready by then,” says Natarajan.
Meanwhile, the group is looking to expand and deepen its presence into the Indonesian market. The analyst reckons that this could be done through an acquisition of the group’s existing franchise or entering into sub-franchise agreements.
The group also has plans to acquire its own office building in Singapore to consolidate its business and save on rental expenses.
Furthermore, the group is also planning on acquiring other real estate support service businesses and franchise expansions, which would add more stability to its stable non-recurring income stream.
If the group does not find suitable guidance, its management would consider raising future dividend payout ratio. The analyst has raised the future dividend payout ratio to 60% from 50%, translating into an attractive yield of 4.6% for 2018.
DBS is also reiterating its “buy” recommendation on APAC Realty with a higher target price of $1.25.
In a Monday report, analyst Lee Keng Ling says, “Having a strong track record and a sizeable agent base is a key winning formula for ERA as it allows the agency to reach out to a diverse base of potential property buyers.”
Ling has revised the industry transaction value upwards to $50 billion, representing 10% y-o-y growth for FY18, while keeping FY19 growth projection at 5%.
“We believe that APAC is largely viewed by the market as a developer-agnostic proxy to Singapore’s private and HDB residential transaction volumes and values. As such, any newsflow in relation to the Singapore residential market should drive APAC’s share price,” says Ling.
As at 10.30am, shares in APAC Realty are trading 5 cents or 4.55% higher at $1.15, or 2.7 times FY18 book value.
