Brokers' take: DBS downgrades APAC Realty to 'hold' with lower S$0.88 target price

DBS Group Research has downgraded its call on APAC Realty CLN from "buy" to "hold", with a lower target price of S$0.88 from S$1.05 previously.

This represents a 5 per cent upside from the counter's trading price of S$0.86 as at 2.44 pm on Monday (Nov 15). APAC Realty's shares were up S$0.02 or 2.4 per cent at the time.

The revised valuation comes as DBS expects a muted growth outlook for the real estate firm, believing that the depleting inventory of unsold new launches and ongoing construction delays could result in fewer new launches available for sale.

As such, APAC Realty's new homes segment could see a weaker performance unlike the stellar performance in FY2021, said analyst Ling Lee Keng in a report on Monday.

The mainboard-listed company had posted net profit of S$26.1 million in the first 9 months of 2021, more than double the S$10.9 million bottom line a year ago, owing to strong sales of new homes.

The analyst further opined that the firm's earnings could taper and move sideways in the next 1 to 2 years, noting that the stock is also at risk of de-rating, should any property cooling measures be announced.

"At current level, we believe the positives are priced in," he said, adding that the share price has surged 118 per cent since the brokerage's upgrade call in November last year.

DBS had upgraded the counter to "buy" then as the property market was resilient amid the Covid-19 pandemic, and valuation was attractive at 1 standard deviation below its four-year average.

As such, DBS has reduced APAC Realty's target price to S$0.88, or 10 times forward earnings, down from 14 times previously.