• NEUTRAL, new TP of SGD0.44 from SGD0.46, 7% upside with c.7% FY24F yield. APAC Realty had a challenging FY23, with earnings declining sharply as Singapore residential market volumes eased. While residential market transactions should rebound slightly this year on higher supply, demand remains selective amid high interest rates. Meanwhile, the group has been investing in technology and overseas markets, which have been a near-term drag on earnings, but will likely bring benefits in the longer run. Key catalyst: Market share gains. Policy headwinds and recession are key risks.

• FY24 transaction volumes expected to pick up slightly, mainly driven by a larger estimated project pipeline of 34 new launches (2023: 21), yielding c.12,000 units (2023: 8,158 units). For 2024, we expect new private home sales (excluding executive condominiums) to grow 10-15% YoY, to 7,000- 7,500 units. Resale volumes, meanwhile, are expected to be similarly increase by 10-15% YoY amid more bargain-hunting and spill over demand from new launches. Note: GPMs are higher for new launches (i.e. in the low teens) compared to high-single digits for secondary property projects. APAC’s FY23 PATMI plunged by 56% YoY, driven by lower volumes across all segments and losses at its overseas entities. Its total FY23 DPS of 2.5 SG cents reflects a 78% dividend payout ratio and c.6% yield, higher than the market average yield of c.5.7%, which we believe should support its share price.

• Focus on improving primary market share and agent count. Its subsidiary ERA Singapore’s (ERA) primary residential segment estimated market share dipped slightly in FY23 to 29.3% of total transaction value (FY22: 31.7%), while its market share in the resale segment improved slightly. APAC’s overall agent headcount rose 6.6% YoY last year to 8,891 (industry: +2.4% YoY), with a target to increase this to 10,000 agents by end-2024. ERA also plans to increase productivity with help of technology tools, by integrating the latest artificial intelligence tools in its SALES+ super app, which has received a favourable response and helps in attracting young talent.

• Overseas ventures have been disappointing so far with net losses of SGD1.5m last year, mainly due to the lack of project launches in ERA Vietnam. A turnaround is likely to be slow for overseas markets, with a breakeven expected only by FY25, in our view.

• We tweak FY24-25F net profit by +4% and -3% by adjusting our forecasted sales volumes. We also introduce our FY26 forecasts in this report. We raise our ESG score to 3.1 (out of 4.0) on the back of a higher score in its “S” pillar. As its ESG score is in line with the country median, we applied a 0% ESG discount/premium to its intrinsic value to derive our TP.

Source: RHB Research - 8 Mar 2024