Brokers' take: Analysts cool on APAC Realty, but still recommend PropNex

APAC Realty CLN may risk being hit by cooling measures amid the recent property market euphoria, RHB said. Meanwhile, analysts at Lim & Tan Securities said PropNex OYY has stronger financial metrics.

RHB downgraded its call on APAC Realty to "neutral" from "buy", but raised its target price to S$0.88 from S$0.70, noting that its valuation - 13 times the broker's estimates for its FY2022 earnings - is fair "considering the risk-reward profile".

At the same time, Lim & Tan Securities has an "accumulate" call on PropNex with a target price of S$2.19, noting that the company's fundamentals have not turned negative despite the pandemic, it said on Wednesday.

On Wednesday, shares of APAC Realty closed at 93.5 Singapore cents, up half a cent or 0.54 per cent, while shares of PropNex closed at S$1.91, three cents higher or up 1.6 per cent.

Analysts at Lim & Tan Securities said it is justified that PropNex should continue to trade at a premium relative to APAC Realty, given that it is more than twice the size of the latter in terms of market capitalisation and is also a more attractive real estate broker. The analysts expect long-term growth potential for PropNex will be 13.5 per cent going forward.

The research team noted that PropNex has a higher return on equity and net profit than APAC Realty. The real estate broker also has a stronger balance sheet, with a net cash position of S$0.326 per share, compared to APAC Realty's net debt position of S$10.4 million, or net gearing of 6.3 per cent.

Lim & Tan Securities is forecasting a 106 per cent growth in PropNex's net profit for FY2021 to S$60.1 million. It also expects the company to pay a dividend of 11 cents per share for the full year, versus just 5.5 cents in FY2020. This would translate to a payout ratio of 67.7 per cent for FY2021, versus 70 per cent in FY2020.

Meanwhile, APAC Realty may be hit by demand-side measures in the near term amid strong sales in both the primary and private resale markets, as well as a series of price hikes, said RHB analyst Vijay Natarajan.

Furthermore, although APAC Realty "blew past market expectations with a strong set of Q2 numbers and a surprise big dividend payout", earnings will likely peak this year due to reducing inventory levels and the release of pent-up demand, Mr Natarajan said.

He raised net profit estimates for the company by 28 per cent and 18 per cent in FY2021 and FY2022, respectively, to factor in the strong residential volume, but expects earnings will decline 15 per cent next year on falling inventory levels in the primary market.

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