RHB Bank Singapore analyst Vijay Natarajan has maintained his “neutral” call on APAC Realty while lowering his target price from 44 cents to 42 cents following weaker transaction volumes due to a slowdown in new launches in 2024.
With new home sales forming the company’s high-margin segment and key contributor to earnings, Natarajan notes that a drop in new launches “is expected to hit APAC Realty’s bottomline”.
That said, the analyst adds that with the Singapore government’s efforts in ramping up land supply, new launches can be expected in the next two years.
The stock also remains supported by its overall net cash position and its relatively “healthy” yield of around 5%.
For FY2024, the analyst has cut his net profit estimate by 28% to $9 million, representing a 24% decrease y-o-y. This follows his forecast of home sales volumes for 2024 dropping 5% to 15% lower due to the deferment of new launches.
As of 1H2024, an estimated 2,000 units have been launched with year-to-date sales for May decreasing 48% y-o-y to 1,697 units.
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“This comes on the back of a delay in getting planning and launch approvals, as well as weaker sentiment in the high-end segment, resulting in the postponement of certain projects by developers,” says Natarajan.
The analyst notes that new home sales contribute around 25% to 40% of revenue. This can account for around 40% to 60% of the company’s bottomline due to APAC Realty’s standing at more than double that of the resale and rental market segment at 13% to 17%
“However, with the continued ramp-up in government land supply over the last few years, and developers’ requirements to sell the project within five years, we believe there will be significantly more new launches in the next two years,” adds Natarajan.
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As such, the analyst has raised his FY2025 to FY2026 net profit forecasts by around 5%.
Following the lack of new launches and growing price gap, he notes a buyer shift towards private resale and Housing Development Board (HDB) resale flats which have raised expectations towards overall volumes for the segment.
With buyers and sellers directly engaging in transactions enabled by the launch of the new HDB flat portal, the analyst believes the impact on agencies to be minimal.
Additionally, the analyst also notes that APAC Realty’s overall Singapore agent count increased 6% y-o-y in 2023 to 8,891. The company aims to increase its Singapore agent count to 10,000 by the end of 2024.
APAC Realty’s environmental, social and governance (ESG) score sits in line with the country median score at 3.1 (out of 4). As per RHB’s in-house proprietary ESG methodology, the analyst’s target price includes a 0% discount to the intrinsic value.
As at 12.04pm, shares in APAC Realty are trading at 0.5 cents lower or down 1.25% at 39.5 cents.
