APAC Realty, which runs the ERA property agency, saw it FY2024 earnings dropped 39% y-o-y. Nonetheless, Vijay Natarajan of RHB Bank Singapore is keeping his "buy" call on this counter given its attractive valuation at 11x FY2025 earnings and a 7% dividend yield which should cushion downside risks.
Given strong earnings growth this year thanks to the strong resurgence in Singapore residential volume, Natarajan has raised his FY2025 earnings estimate by 8% and coming FY2026's by 7%, leading to a higher target price of 48 cents from 42 cents.
"Concerns from possible cooling measures impact are mitigated by genuine underlying pent-up demand and tailwinds from moderating interest rates, which will likely continue to support the residential market," says Natarajan in his March 17 note.
Since the start of the year, some 3,300 private homes have been sold - a level which exceeded 50% of last year's figure. Natarajan expects new private home sales to reach a total of between 9,000 and 10,000 units this year.
In addition, there's already strong revenue to be booked from homes sold in 4QFY2024, after factoring in the usual time lag of two to six months.
Furthermore, resale and rental markets are also expected to remain relatively resilient with an expected growth of 5-10% y-o-y.
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Natarajan notes that ERA’s estimated market share slightly dipped by 0.5 percentage points in FY2024 to 35% of total residential transaction value, but he expects this to stabilise at current levels as technology and productivity benefits kick in.
Natarajan also notes that ERA’s Singapore agent count as of Feb 19 was 8,825, down slightly from 8,891 at the beginning of 2024, after the company stopped paying agents' licensing renewal fees amounting to more than $2 million.
According to Natarajan, paying the registration fees on behalf of the agents was part of a strategy in the past seven years to attract a bigger sales force.
Moving forward, the company plans to reallocate resources toward moves to boost the productivity of the agents instead.
"We see this as a step in the right direction and should aid in better profitability over the years," says Natarajan.
For FY2024, the company plans to pay a total dividend of 2.1 cents, which represents a payout ratio of 79% payout ratio and a yield of 5% yield.
Going forward, Natarajan is projecting a payout ratio of 80% which given the projected jump in FY2025 earnings, will translate into a payout of 3 cents.
APAC Realty shares changed hands at 42 cents as at 11.53 am, unchanged for the day, and up 7.69% year to date.
