• Stay NEUTRAL, lower SGD0.42 TP from SGD0.44 (7% upside). The sharp slowdown in new launches this year – resulting in weaker transaction volumes – is expected to hit APAC Realty’s bottomline, as this (new home sales) is the company’s high-margin segment and a key contributor to earnings. However, with the Government ramping up land supply, there should be more new launches in the next two years, and a recovery is likely around the corner. The stock remains supported by its overall net cash position and relatively healthy c.5% yield.

• FY24F net profit cut by 28% to SGD9m (-24% YoY), as we now expect new home sales volumes for the year to be 5-15% lower than that of last year (from our previous expectation of a slight growth). The key reason for this is the deferment of new launches, with only c.2,000 units being launched in 1H24 – as a result, YTD (May) new sales have slumped 48% YoY to 1,697units. This comes on the back of a delay in getting planning and launch approvals, as well as weaker sentiment in the high-end segment, resulting in the postponement of certain projects by developers. New home sales commissions typically contribute 25-40% of revenue, but can account for 40- 60% of the bottomline, as the segment’s gross margin is at 13-17% (more than double that of the 6-8% for the resale and rental market segment). However, with the continued ramp up in government land supply over the last few years, and developers’ requirements to sell the project within five years, we believe there will be significantly more new launches in the next two years. We have raised our FY25-26F net profit forecasts by c.5%.

• Resale and rental market segments relatively stable. The lack of new launches and growing price gap with new launches have resulted in buyers shifting to private resale and Housing Development Board (HDB) resale flats. As a result, overall volumes for the segment are expected to be slightly higher than last year. We believe the impact on agencies from the launch of the new HDB flat portal (link) – by which buyers and sellers can directly engage in transactions – is likely minimal, considering the time consuming nature of the entire process, as well as the value-add services provided by property agents.

• Focusing on raising agent count and productivity using technology. APAC’s overall Singapore agent count rose 6.6% YoY last year to 8,891 (industry: +2.4% YoY). It aims to increase this to 10,000 agents by end-2024. It has also been heavily investing in technology tools by integrating the latest artificial intelligence tools in its SALES+ super app, which has received a favourable response and helped to attract and retain young talents.

• ESG. Our DCF-derived TP includes a 0% ESG discount/premium, as APAC’s ESG score of 3.1 (out of 4.0) is in line with the country median score.

Source: RHB Research - 5 Jul 2024