APAC Realty: At earnings inflection point
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At earnings inflection point
APAC Realty (APAC) reported FY24 core PATMI of SGD9.5mn (-39% y/y), in line with expectations. However, including the Performance Share Plan (PSP) of SGD2.3mn, PATMI would have been SGD7.2mn (-20% y/y). The company granted 16mn shares under the PSP in FY23, with the shares vesting over a four-year period. In 2H24, 4mn shares were vested, and the remaining shares will continue to be vested annually until FY27. Consequently, APAC will recognise a cost of SGD2.3mn each year until then.
FY24 revenue remained relatively stable at SGD561.0mn (+0.7% y/y), as an increase in resale and rental of properties to SGD445.1mn (+10.3% y/y) was almost completely offset by the decline in new home sales to SGD107.9mn (-25.7% y/y). The shift in product mix, as a result of the low number of new project launches in Singapore in 2024, led to a lower gross margin of 8.9% (-1ppt y/y), as new sales typically yield higher margins.
A final dividend of 1.2Scts per share brought total FY24 dividend to 2.1Scts per share, down from 2.5Scts per share in FY23. Nonetheless, this is in line with its dividend policy and translates to a payout ratio of 78.7%, based on core PATMI.
Expect a significantly stronger FY25-26F. While lower transaction volumes in the new home segment weighed on margins in FY24, a rebound is expected this year, given a robust pipeline of projects that offer close to 13,000 new launch units. We project new launch transaction volumes to recover to c.8,000-8,500 units in FY25, which is closer to historical levels, up from slightly over 6,000 units in FY24. Additionally, the impressive sales activity in Nov 24 – including six new launches and a spillover effect on earlier launches – surpassed the total take-up of the first nine months of 2024 and will be reflected in FY25 results. APAC has maintained healthy market share in all these new launches, primarily ranking as the second-largest player after PropNex. With the government continuing to release ample residential supply in the Government Land Sales (GLS) programme for developers to bid for, a steady stream of launches is expected over the next two years. Consequently, the group should achieve margin expansion and a considerable improvement in earnings.
Maintain BUY with unchanged TP of SGD0.50, based on 13x FY25F P/E (close to four-year historical average). There will be potential upside if the group captures higher-than-expected market share in upcoming launches.
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