PropNex - DBS Research 2022-09-30: Not Spared From New Cooling Measures

• Barely a year after the last round of cooling measures announced in December 2021, the government has introduced several fresh measures to cool the property market, including new restrictions to curb quantum and taper demand.
• Refer to the MAS-MND-HDB joint press release. This time round, the measures are more targeted at the HDB segment while the reduction in the total debt servicing ratio (TDSR) would reduce affordability and also affect the private property market. The HDB resale index has gained 5.2% since December 2021, vs a 4.2% gain for the overall private residential index.

Market leader not spared but growing sales force could help to mitigate.

• PropNex (SGX:OYY), which has the biggest share in the Singapore property market’s agency business, is not spared from this new set of measures.
• PropNex is on track to bring its Singapore salesforce to 12,000 by end of 2022. As of 1 August, PropNex has 11,744 salespersons locally, with 948 experienced and new salespersons joining since January 2022. This translates to an 8.8% increase from the beginning of the year, higher than the average industry growth of ~6%. With a strong and growing sales force, this could help to mitigate some of the negative impact from this latest round of cooling measures.

Growing contribution from private resale and HDB segments.

• With limited new launches coming onstream, PropNex has seen growing contributions from the private resale and HDB segments as per its latest set of results in 2Q22. Though a strong sales force could help it to gain market share, overall transaction activities would still be hit.
• The impact on PropNex's FY22F earnings is more muted, mainly affecting the resale and HDB segments as there is a lag of a few months in the booking of revenue from the transaction date for the new launch segment.

Cut property transactions assumptions by 4% to 30%.

• We have cut our transaction volume projections for the various segments.
  • We are now projecting new home sales of 8,500/7,000/8,000 units for FY22F/23F/FY24F, vs our previous projection of 9,000/10,000 for FY22F/23F.
  • For private resale segment, we project 14,000/11,000/12,000 for FY22F/23F/FY24F, down from our previous expectation of 15,000 and 16,000 units for FY22F and FY23F respectively.
  • Projection for HDB resale transaction has also been lowered by 4-15% to 25,500/23,000 units for FY22F/23F.

PropNex – Earnings forecast & Recommendation

• We have revised down FY22F/23F earnings forecast for PropNex by 9%/35%, on the back of the lower transaction volume assumption as a result of this new set of cooling measures.
• Our target price for PropNex is reduced to S$1.19 (previously S$1.71), pegged to ~13x FY23F earnings, equivalent to +1 standard deviation of its average 4-year P/E, given its leadership position. Given the overhang from the cooling measures, we downgrade our rating for PropNex to FULLY VALUED from HOLD previously.