Broker's take: DBS upgrades Apac Realty to 'buy' on steady transactions, valuations

DBS Group Research has upgraded its recommendation on real estate services provider Apac Realty, which owns ERA Realty Network, to "buy" from "hold". The research team cited better-than-expected property transaction activities and "attractive valuations".

It has also raised its target price (TP) on the counter to S$0.53, from S$0.40 previously. The revised TP represents a 39 per cent upside from Apac Realty's Friday close of S$0.38.

As at 1.05pm on Monday, the counter was trading at 39.5 cents, up 1.5 cents or 4 per cent.

"The property market was resilient amid the Covid-19 pandemic. Transaction activities in the various segments only saw a slight decrease of between 1.2 per cent and 5.2 per cent year on year in 9M 2020," wrote DBS analyst Ling Lee Keng in a research note on Monday.

DBS now expects the overall market transaction value to ease 2.4 per cent in FY2020, before rebounding 3.4 per cent in FY2021 and 7.9 per cent in FY2022.

Despite fewer project launches, supply is still healthy, the research team noted. ERA has launched 21 projects from January to October this year, versus 43 projects in 2019, DBS said, adding that there are 21 more projects slated for launch during the rest of this year and in FY2021.

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Apac Realty holds the ERA regional master franchise rights for 17 countries in the Asia-Pacific.

According to Ms Ling, Apac Realty is now trading at an "attractive" 9.4 times price-to-earnings (P/E) ratio for 2020, which is slightly below 1 standard deviation of its five-year average P/E.

DBS has also raised its sales assumptions and the earnings forecasts for FY2020 to FY2021 by 22 to 25 per cent.

Added Ms Ling: "TP is increased to S$0.53 on higher earnings and valuation peg of 12.4 times P/E on FY21F earnings, average of its five-year P/E, versus 11.4 times at -1 standard deviation previously, as we believe the worst is over."