• APAC Realty’s 1Q21 net profit of S$7.5m was above our expectations, at 45% of our FY21 forecast.
• Brokerage commission surged across new home sales, private and HDB resale segments in 1Q21.
• Reiterate ADD with a higher target price of S$0.865.

APAC Realty's 1Q21 Business Update Highlights

• In its 1Q21 business update, APAC Realty (SGX:CLN) reported a 70% y-o-y jump in revenue to S$153.1m, led by higher revenue across all its business segments, thanks to an increase in market transaction volume. In addition, its overall market share by transaction volume also improved to 28.2% from 27.5% a year ago.
• Gross profit increased a smaller 50% y-o-y to S$15.1m as gross profit margin declined to ~9.9% (vs. 11.2% a year ago). 1Q21 net profit more than doubled y-o-y to S$7.5m.

Surge in Resale and Rental Commissions in 1Q

• APAC Realty generated S$96.4m or ~63% of its topline from commission income from resale and rental of properties. The 48.5% y-o-y surge was achieved through a 117.3% increase in private resale transaction volume and a 28.6% pick-up in HDB resale activity. In addition, the private rental market volume also improved 11% y-o-y in 1Q.
• Looking ahead, we anticipate the private and Housing & Development Board (HDB) resale markets to remain robust. Although there was a recent step-up in COVID-19 safety measures effective from 8 May, agents are still able to undertake a limited number of property viewings in person, or conduct virtual property tours. As such, we believe the momentum in the private and HDB resale markets should remain fairly robust.

New Home Sales Brokerage More Than Doubled in 1Q

• Brokerage revenue from new home sales surged 133% y-o-y to S$54.3m in 1Q21 due to an improvement in market share to 32.2% amid a 63% hike in new home sales volume. APAC Realty has year-to-date secured marketing agent roles in 23 projects.
• Given the ample liquidity environment and declining quantum of unsold inventory (based on data from the Urban Redevelopment Authority, URA), we believe buying interest should remain strong. As such, we believe APAC Realty’s performance should continue to benefit from the volume transaction upswing.

Reiterate ADD Rating

• We tweak up our APAC Realty's FY21-23F earnings per share forecast by 36.8-39.7% as we increase our private resale and primary market transaction value assumptions, due to a higher mix of centrally-located products.
• Our target price for APAC Realty rises to S$0.865, still based on the average of 10x FY21F P/E and DCF valuation (cost of equity: 8.9%).

• Potential re-rating catalysts for APAC Realty include its ability to regain market share in both the primary and secondary residential segments.
• Key downside risk: protracted recovery of the property market due to weak macro outlook.

Source: CGS-CIMB Research - 13 May 2021