PropNex - SAC Capital 2022-03-08: Correction In FY22e, But Growth In FY23e


PropNex - Correction In FY22e, But Growth In FY23e

  • PropNex (SGX:OYY) had a solid year in 2021 on the back of a robust property market. Net earnings doubled to S$60m.
  • Delay in HDB BTO construction, strong liquidity with higher household savings, and rising household formation (+1.3%) lifted total home sales by 40.8%. Prices gained 7.5% for private and 12.7% for HDB. This is aided by its expanded agency base of 11,125 (Dec 20: 8,324), > 40% of the market size and growing, giving it the edge to snag projects.

FY22 sales volume will see a correction

  • PropNex's FY22 sales volume will see a correction due to low inventory of new units (14,154 units – a record low), smaller new launches of ~7,000 units (compared with average ~10,000 units), and cooling measures implemented on 16 Dec 2021 that lowered the borrowing limit to 55% (from 60%) and raised stamp duty (ABSD) for foreigners and buyers of second homes. Potential buyers might also hold back in anticipation of new supply coming on stream.
  • HDB plans to ramp up BTO launches to 23,000 yearly in 2022 and 2023 (FY21: 17,100). 1H22 government land sales (GLS) will yield 2,800 new units. More aggressive GLS is expected in 2H22, translating into new launches in 2023. We estimate private new sales will fall 30%, private resale volume 20% lower and flat HDB demand.
  • Prices will be sustained by the lower supply, rising construction costs, and higher cost for new HDB. We expect prices of private resale to be stable, while HDB resale prices might gain 3% in FY22E.

Recovery in sales volume in FY23E

  • Besides GLS, more than 31,000 HDB flats (FY21 ~26,000) will reach minimum occupation period in 2022. These HDB upgraders will look to acquire private residential units, with profits from sale of flats. Border re-opening will draw demand from expatriates and foreign buyers, notwithstanding higher ABSD and property tax.
  • The drawback is heightened uncertainties caused by Russia/Ukraine conflict that could hurt consumers’ sentiment, especially for big ticket items.

Lower target price of S$1.78 for PropNex

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2022-03-08
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.78 DOWN 1.940