Overhang from cooling measures
- Stellar FY21 results, above expectations; resale segment saw the biggest jump in revenue
- Growing dominance in Singapore, with sales force +24.5% y-o-y
- But we cut FY22F/23F earnings by 15%/10% to factor lower transaction volume assumptions going forward
- Maintain HOLD with a lower TP of S$1.71
Investment Thesis:
Overhang from recent cooling measures and higher interest rate environment. Our HOLD recommendation is premised on the stock’s rich valuation (+1.8 SD of its historical mean) and the impact from the recent cooling measures, coupled with a higher interest rate environment.
Lower volume of new launches and units sold to weigh on FY22F earnings growth. We believe that PropNex’s growth potential would be held back by lower volumes of new launches and units sold in the next few years. This is based on depleting inventory of unsold new launches as well as construction delays. In addition, c.40% of the inventory of new launches are in the CCR, which are priced higher and have less demand. However, this can be partly offset by the expected increase in market share with a 24.5% increase in the sales force from a year ago to cross the 11,000 mark.
Higher contribution from resale segment to weigh on margins. Due to the lower supply of new launches, we are expecting a higher contribution from the resale segment, which has lower gross profit margins.
Valuation:
Maintain HOLD with a lower TP of S$1.71. On the back of the 10-15% earnings cut on lower transaction assumptions, TP is reduced to S$1.71 (S$1.84 previously). This is based on 13x FY22F PE (previously 12x), which is at +1.8 SD of its historical mean. We believe PropNex deserves a higher rating given its growing dominance in the Singapore property market.
Where we differ:
We are slightly more cautious on earnings than consensus.
Key Risks to Our View:
Property cooling measures, a rise in interest rates, delays in new launches due to lockdowns, tightening of foreign worker policy, and rise of disruptors in the industry.