PropNex - SAC Capital 2022-08-26: Rising Rates, Lower Supply Impact 2H22


PropNex - Rising Rates, Lower Supply Impact 2H22

  • PropNex (SGX:OYY)'s 2Q22 revenue fell 11.4% y-o-y to S$230.7m and net profit -20.7% to S$13.1m. The performance was no surprise, as revenue booked lagged property transactions by 8 to 12 weeks typically.
  • Volume in 1Q22 was affected by the Dec 21 cooling measures and a dearth of new launches. Industry-wide, volumes fell for HDB resale flats (4Q21: 5.8% q-o-q, 1Q22: -12.7%) and private resale (4Q21: -12.7%, 1Q22: - 32.6%). The latter rebounded +27.5% q-o-q in 2Q22, but was still 19.4% lower than 2Q21.
  • According to SRX, volume of private resale units sold in July dipped further by 6.7% over June and was 30.7% lower than July 2021. The number of HDB resale transacted was 10.5% higher m-o-m, but still down 11.3% when compared with July 2021.
  • Private resale prices were higher (2Q22: +3.5% q-o-q), supported by rent hikes (2Q22: +6.7% q-o-q), low inventory and border re-opening. Likewise, HDB resale prices rose 2.8% q-o-q in 2Q.
  • The push to attract foreign talents is likely to drive demand for rental and property prices. Risk of mortgage default is low even with rising mortgage rates, given low unemployment rate (Jun: 2.1%) and increase in unit labour cost (2Q22: +9.0% y-o-y).
  • Still, there is a risk of a tightening in the total debt servicing ratio (TDSR) for mortgage loans, to keep pace with rising mortgage rates and to contain credit risks. The rate applied in determining TDSR is currently set at 3.5%, and a higher rate will cut loan quantum and buyers’ affordability. This could apply to new and existing housing loans.
  • We believe transaction volume will slow in 2H. A stronger government land sale programme, and more completions of new HDB flats could also cause potential buyers to adopt a wait and see approach.
  • Developers are faced with rising financing costs and higher land and construction costs, and would pivot to larger agencies to ensure a greater certainty of sale and cash flow. PropNex, with an agency base of 12,000, also boasts a database of available units in the resale market.

PropNex - Earnings projection & target price

Peggy Mak SAC Capital Research | https://www.saccapital.com.sg/ 2022-08-26
SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.780 SAME 1.780