PropNex - Sustainable Demand & Stable Prices To Provide Support
- PropNex (SGX:OYY) reported a 17.8% y-o-y increase in 3Q22 net profit to S$18.2m, on the back of the 10.2% gain in revenue to S$258.4m. The bottom line was boosted by other income of S$5.8m (vs. S$1.5m in 3Q21), mainly due to an increase in advertising and marketing income and the derecognition of trade payables to agents. See PropNex's announcement dated 09 Nov 2022.
- For 9M22, PropNex's revenue rose 2.1% to S$730.8m but net profit eased 6.7% to S$46.5m on lower contribution from the higher margin project marketing (new home) segment. Project marketing revenue of S$271.8m (accounts for 37% of total revenue) saw a 16.6% decline for the nine-month period, due to fewer projects launched.
- PropNex saw an 11.8% increase in its salesforce headcount to 12,065 (as at 2 November 2022) from 10,796 salespersons since 1 January 2022.
8.2% increase in private home prices from January to September 2022; expect overall price increase of 9% to 10% for 2022.
- Overall private home prices grew for the 10th consecutive quarter by 3.8% in 3Q22 and climbed 8.2% from January to September 2022. PropNex expects an overall price increase of 9% to 10% for 2022, on the back of the tight unsold stock of new private homes and limited new launches in 4Q22. Transaction volumes are estimated at 8,000 to 8,500 units (ex. ECs) for the year.
- Transaction volumes for private residential resale will likely remain muted given the tight resale inventory. Private homeowners looking to downgrade to HDB resale flats may now also hold back due to the newly imposed 15-month wait-out period, further crimping available resale stock.
- The latest cooling measures introduced on 30 September 2022 affect the loan quantum for HDB buyers, as well as potentially delay cash-rich private home downgraders from entering the HDB resale market. For the whole of 2022, PropNex projects that HDB resale prices could rise by a healthy 9% to 10%, slower than the 12.7% increase posted in 2021.
- PropNex has secured marketing mandates for 35 projects to be launched in 2023, with a total of ~11,000 units. This should help to offset the depleting stockpile.
Expect a weaker 4Q22 and 1Q23, as the impact from recent cooling measures sets in.
- The impact of the latest round of cooling measures that were introduced on 30 September 2022 are yet to be fully reflected in the real estate activities in 3Q22. We expect a weaker 4Q22 and 1Q23, as the impact from the new measures sets in, especially for the HDB resale segment.
- Resale HDB flat prices rose by 2.6% q-o-q in 3Q22, following the 2.8% q-o-q gain in the previous quarter. The increase came amid a 10.7% growth in resale volume from 6,819 flats in 2Q22 to 7,546 flats in 3Q22. In the first nine months of the year, HDB resale prices have now risen by about 8% and total resale HDB flat transactions came up to 21,299 units.
- The market took a longer time to adapt to the earlier rounds of cooling measures as compared to the recent rounds. The gestation period became shorter during the rounds of cooling measures in 2018 and 2021, of about one to two quarters, vs about four years in 2013, using the Private Property Price Index as a gauge.
- This time round, the impact may not be so huge, on the back of:
- A strong supply pipeline for new launches of ~11,000 units for PropNex in 2023, vs ~ 4,000 units launched in 2022;
- Higher selling prices.
- The Property Price Index has surged ~8.2% year-to-date and prices could still remain high going forward, though the pace of increase is expected to be moderate.
Raised earnings forecast, upgrade PropNex to HOLD.
- We are now projecting
- new home sales of 8,500/9,000/9,500 units for FY22F/23F/24F.
- private resale of 14,000/13,000/15,000 units for FY22F/23F/24F.
- HDB resale transactions of 28,000/26,000/27,000 units for FY22F/23F/24F.
- Earnings forecast for PropNex in FY22F/23F/24F were raised significantly on the back of the higher transaction volume assumptions.
- Since our downgrade to FULLY VALUED on 30 September 2022 post the introduction of the latest cooling measures, PropNex's share price eased 17% to a low of ~$1.25 three weeks later and has seen some rebound recently. The physical property market has also held up better than our earlier expectations.
- Given the more resilient property market now supported by a strong supply pipeline of new launches and stable prices, we raise our target price for PropNex to S$1.61 (previously S$1.19), pegged to 11x FY23F earnings, equivalent to +1 standard deviation of its average 4-year P/E, given its leadership position. Upgrade PropNex to HOLD from FULLY VALUED.
Above is the excerpt from report by DBS Group Research.
Clients of DBS may access the full report in PDF @ https://www.dbs.com/insightsdirect/.
Lee Keng LING DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-11-11 2022-11-11
Previous report by DBS Research:
2022-09-30 PropNex - Not Spared From New Cooling Measures
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