APAC Realty fails to to meet DBS's revenue expectations, TP lowered to 57 cents

APAC Realty 1QFY2023 ended in March 31 revenue was 29% down y-o-y at $121.4 mil, and net earnings plunged 67% y-o-y to $3 mil.

As APAC Realty’s CLN 1QFY2023 ended in March 31 revenue performed “below expectations” at 29% down y-o-y at $121.4 million, DBS Group Research’s Ling Lee Keng has maintained her “hold” call, reducing her target price to 57 cents from 63 cents previously.

The leading player in the real estate brokerage industry saw its new brokerage revenue decline 49% to $39.4 million, and resale and rental brokerage revenue drop 13% to $80.3 million. Its net earnings plunged 67% y-o-y to $3 million, as net margin eased to 2.5% as compared to 5.3% in 1Q2022.

In her report dated May 15, Ling notes that net margins were affected by higher expenses in marketing and personnel expenses, and lower topline.

While the overall property market saw private property prices rising 3.3% q-o-q, much faster than the whole of 2022 at 8.4%, new home sales decreased 31.2% to 1,256 units as compared to 1Q2022, mainly due to fewer new launches.

Private resale home sales also decreased 18.6% y-o-y to 2,865 units, but sales for HDB resale flats remained stable at a growth of 0.6% y-o-y.

“The HDB resale price index is showing signs of stabilizing, growing 1.0% q-o-q (and 8.8% y-o-y), the lowest in the last 10 quarters,” says Ling.

As the property market had been hit by three cooling measures in less than a year, the analyst says that concerns remain that more measures could be in the pipeline.

“Coupled with the high interest rate environment, overall sentiment could be affected. Impact could be partially offset by the robust pipeline of new launches and the relatively resilient demand from both locals and foreigners. Prices, on the other hand, could remain stable despite higher costs,” Ling says.

The analyst has therefore reduced her property transaction volume assumption for the various segments – private new home, private resale and HDB resale - by 7% to 22% for FY2023 and FY2024.

Ling notes that despite the relatively resilient property market in Singapore, growth could be muted given land scarcity. APAC Realty is therefore exploring overseas opportunities to fill the gap, with its most recent increase in stake in its Vietnam investment.

However, Ling says that a meaningful contribution can only be expected come 2025.

On the back of lower transaction assumptions coupled with lower margins, Ling has cut her earnings for FY2023 and FY2024 by 33% and 21%.

With that, the analyst has pegged her lowered target price to 9.5 times P/E, near its four year average P/E, on the blended FY2023 and FY2024 earnings.

As at 3.25pm, shares in APAC Realty are trading 1 cent higher or 1.739% up at 58.5 cents.

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