+ New home sales surged 79% YoY. The spike in home sales volumes was in comparison to new home sales a year ago, due to the fall out from the July 2018 cooling measures. Revenue from new homes sales in 4Q19 was the 2nd highest in history. The lag between the transaction date of the property and revenue recognition is 3 to 6 months depending on the project.
– Provision for doubtful debts jumped in 4Q19. Provision for doubtful debts swung from write-back of S$300k to an allowance of S$869k. APAC has a policy of making full provision of a trade receivable when due more than a certain period outstanding. These are one-off provisions likely from resale and do not appear systemic. Disputes over commission are some triggers for the provision. Exposure is offset by a trade payable write-back in cost of services for the amount due to the agent. Total exposure is 10% of the provision.
– Taxes higher in 4Q19. The effective tax was 21% compared to 14% last year due to certain allowances not allowable. Full-year the effective tax was 19.4% (FY18: 17%).
– Dividends cut by 50%. Final dividend was cut 50% to 1.25 cents in-line (FY19: 2 cents) with the drop in earnings. Dividend payout ratio policy is still at least 50%.
We expect earnings to rebound in FY20e. Transaction volumes are picking-up across all three core business segments – new home sales, HDB resale and private resale. Some of the other non-macro drivers to growth include agency force rising 8.6% YoY to 7,048 agents, ERA APAC Centre turning to profitability and secured agency rights to 25 projects for 2020 so far. Unclear at present is whether APAC will subsidise agency fees of S$230 per year. It is a sizeable S$1.6mn out of pocket expense for the 7,000 plus agents.
New Home Sales
Maintain ACCUMULATE with an unchanged target price of S$0.55
We maintained our recommendation and target price. Our FY20e earnings cut by 13% on higher expenses and effective tax rate.