• Keep BUY and SGD0.72 Target Price, 26% upside plus 7% FY19F yield.
• APAC Realty’s 4Q18 and FY18 results are in line. It remains a good proxy to the demand for residential property in Singapore, which is expected to remain resilient on a strong pipeline of new launches (~20,000 units) in 2019. The recent move to strengthen its overseas presence should help in earnings diversification and bring benefits in the long term.
• While the stock has rebounded from lows since the start of the year (+28%), valuations are still attractive, at 9x FY19F P/E. We are one of two brokers covering this stock.

Dividends Bettered Our Expectation

• For FY18, APAC REALTY LIMITED (SGX:CLN) declared total DPS of SGD0.045 vs our estimate of SGD0.04. This translates into 7% yield and payout ratio of 66%.
• Management intends to maintain its dividend policy of paying out at least 50% of net profits, with room for upside.

Resilient Residential Volumes

• Despite slower take-up rates in recent launches, we expect new launch volumes to stay similar to that of 2018. This is mainly due to a strong pipeline of ~50 residential projects ( > 20,000 units) that are expected to be launched in 2019, ie >2x that of last year. APAC Realty has secured agent roles for 46 projects (~20,000 units).
• On the private resale market, we expect volumes to stabilise as more resale units should be made available in the market, with the en bloc market coming to a standstill. The Housing & Development Board resale & rental market segment should see a pick-up in activity this year, as ~30,000 units are nearing their minimum occupation period of five years, after which they become eligible for sale.

Healthy Market Share Position Still Intact

• APAC Realty’s ERA brand had an overall market share of 36.4% (FY17:37.9%) of total residential transaction value, based on its internal estimate. In new launches, it still commands a healthy market share of 40.7% in transaction value (FY17:39.4%), while the private resale market share stood at 37.2% (FY17: 38.8%).

Strong Increase in Agent Count From Acquisitions

• ERA’s current agent count increased to 6,600, 12% higher vs the beginning of last year. This came after management acquired residential agents from CBRE Realty Associates (150 agents) and HSR International Realtors (300).
• Management noted that it will continue to focus its efforts to beef up agent numbers and increase productivity this year, amid stiff market conditions.

Deepening Overseas Presence

• APAC Realty also strengthened its overseas presence by making a direct foray into Indonesia, Thailand, and China last year by acquisition of franchises. The contributions are likely to be small to begin with (guidance: ~SGD0.5m in net profit), but are likely to see an exponential growth ahead.
• Currently, we have not factored overseas earnings contribution rates, as we await further details.

Source: RHB Invest Research - 01 Mar 2019