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APAC Realty - Opportunity to accumulate

Shared By Stock Fanatic on Tuesday, June 19, 2018 | 19.6.18

What’s New
• Recent price weakness an opportunity to accumulate

• Uptrend in property market intact

• Expect APAC to deliver stronger 2H18 earnings on strong project pipeline and active en-bloc activity

Reiterate BUY; TP reduced to S$1.22

Recent price weakness an opportunity to accumulate. APAC’s share price has shed c.35% from its recent high in March this year. Current valuation is attractive at 9.5x forward PE or -1.5SD, which is even lower than the c.10x forward PE when it was listed in Sep 17. APAC is one of the purest proxies to ride on the uptrend in the Singapore property market. 2H18 earnings is expected to be stronger with more projects slated for launch. ERA is also able to secure a high market share for the projects that it has been appointed as marketing agent, as compared to other appointed agents. Its low risk fee-based business model enables it to ride on the property up-cycle and protects it in a down cycle. Furthermore, the recent acquisition of an office headquarters allows the group to build recurring rental income.

Where we differ: Sizeable scale and leading market share a winning formula in our view. ERA’s strong market share of c.38% in terms of transaction value in the Singapore residential market allows the agency to reach out to a diverse base of potential property buyers. ERA has a pipeline of 11,343 units across 21 new project launches till 3Q18, which is significantly higher than the units secured in the whole of 2017. Successful sell-through rates for the various projects will set the stage for another record year in FY18F.

Stronger-than-projected volumes could surprise on the upside. We maintain our projection of industry transaction value for the private residential market of S$52.2bn in FY18F (+15% y-o-y), and S$57.4bn for FY19F (+10%). Every additional S$1bn in transaction value adds 2% to our EPS and TP estimates.

Valuation:
Reiterate BUY, TP reduced to S$1.22. Our TP which is based on discounted cash flow (DCF) valuation is lower now as we account for the debt financing portion for the new office building. In terms of PE valuation, we continue to peg the multiple to peers’ historical average of 15x FY18F earnings. On a blended basis, our TP is reduced to S$1.22 (Prev S$1.32).

Key Risks to Our View:
Outlook is dependent on Singapore’s residential property market and macroeconomic conditions.

Source : DBS Group Research

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Posted on Tuesday, June 19, 2018 | 19.6.18
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