Results Analysis: 1H22 results inline; expect higher price increase but sales volume to moderate
- A decent set of results, inline
- Expanding to Australia; growing salesforce, on target to have 12,000 salesperson by end of 2022
- The group expects higher price increase, on the back of low inventory and resilient demand but sales volume to moderate for 2022
- No change in forecasts, maintain HOLD and TP of S$1.71
A decent set of results, inline. PropNex reported 2Q22 net profit of S$13.1m (-20.7% y-o-y; -5.8% q-o-q) on the back of the 11.4% y-o-y drop in revenue to $230.7m. This was mainly due to lower contribution from project marketing services (new homes segment), a result of fewer project launches, partially offset by higher number of transactions completed for agency services (resale and rental). For 1H22 revenue of S$472.3m is 1.8% lower y-o-y while net profit of S$27m is down 13.9% y-o-y. Revenue and net profit account for 60% and 56% respectively of our full year forecasts, broadly inline as we are expecting a slightly weaker 2H22 on lower transaction activities.
An interim DPS of 5.5Scts was declared, representing an annualized yield of c.6.5%, based on share price of S$1.70.
Revenue segmental breakdown
|1H22 (S$m)||% contribution||Y-o-Y change|
Singapore Property Market
|New homes (incl. ECs)||7,601||4,546||-40.2%|
|Unsold units (excl. ECs)||14,087||15,805||+12.2%|
Lower margins. Net margin for 1H22 of 5.7% was lower than the 6.3% for FY21, partly due to lower contribution from the higher margin project marketing services segment, and also higher staff costs due to increase in headcount.
Expanding to Australia. PropNex has expanded its regional footprint into Victoria, Australia – marking its presence in the sixth market in the Asia Pacific. This is the first region outside South-East Asia. The rest of the markets include Singapore, Indonesia, Malaysia, Vietnam and Cambodia.
Growing salesforce. PropNex is on track to bring its Singapore salesforce to 12,000 by end of 2022. As at 1st August, the group has 11,744 salespersons locally, with 948 experienced and new salespersons joined since January 2022. This translates to an 8.8% increase from the beginning of the year, higher than the average industry growth of c.6%.
Expect higher price increase, on the back of low inventory and resilient demand. PropNex has upgraded its forecast and now expects a price growth of 7% to 8% for the full-year 2022, up from previous estimate of 3% to 5%. The Property Price Index (PPI) has already gained 4.2% in 1H22, from end of last year. The group expects private home prices to continue to increase gradually for the rest of the year, with upcoming launches stimulating price growth. In addition, the firm land prices, rising construction costs, and healthy homebuyer demand will also exert some upward pressure on home values. The faster pace of price increase in the primary market may channel some buyers to the resale market, where prices are rising at a slower pace.
Unsold stock has fallen to 15,805 units as at end of 2Q22, from close to 20,000 units a year ago. The bulk of the unsold units are in Core Central Region (6,036), followed by Rest of Central Region (5,383) and Outside Central Region (4,386).
PropNex’s outlook predictions on expected average price for new projects
|Region/Property Type||2015/2016 Pricing ($psf)||2017/2018 Pricing ($psf)||2019 -2021 Pricing ($psf)||2022 Avg. Pricing ($psf)|
|Core Central Region||2,000-2,500||2,600-3,200||2,600-3,500||>2,800/2,900|
|Rest of Central Region||1,400-1,500||1,500-1,700||1,800-2,400||2,400-2,700|
|Outside Central Region||950-1,000||1,100-1,300||1,400-1,800||1,900-2,300|
PropNex expects sales volume for private residential market to moderate. The private new sale volume for 2022 is expected to drop by 30% to 40% from 2021, according to PropNex’s projection. The resale segment is projected to fare slightly better, drop by 20% to 25%. PropNex has a larger market share in the resale segment as compared to the new home sale division.
Better 2H22 performance for HDB segment. For the HDB segment, 6,819 resale flats were transacted in 2Q22, dip 1.7% q-o-q and 3.5% y-o-y. A total of 13,753 resale flats were transacted in 1H22. PropNex expects 28,000 to 29,000 resale HDB units to be transacted for the whole 2022, implying a stronger 2H22 as compared to 1H22.
PropNex’s projection for sales volume
|FY21||1H22||FY22||FY22 Y-o-Y change|
|Private new sale||13,027||4,222||8,000 to 9,000||Drop 30% to 40%|
|Private resale||19,962||7,613||15,000 to 16,000||Drop 20% to 25%|
|HDB resale||31,017||13,753||28,000 to 29,000||Drop 5% to 10%|
Appointed marketing agent for 27 new projects. PropNex was appointed marketing agent to 27 new home projects, with a total of more than 9,000 units to be marketed in 2022.
No change in forecasts, maintain HOLD and TP of S$1.71. Though the property market is expected to recover over the longer term, there would still be an impact in the near term from the cooling measures, and also the rising interest rate environment.
Overall, we maintain our projections for new home sales of 9,000/10,000 units for FY22F/23F. For private resale segment, we project 15,000/16,000 for FY22F/23F. Projection for HDB resale transaction maintained at 26,500/27,000 units for FY22F/23F. Coupled with the depleting inventory of unsold units as well as construction delays, overall transaction value is expected to ease c.30% in FY22F, after a strong c.70% surge in FY21. No change to our earnings forecasts.
Maintain HOLD call on PropNex and TP of S$1.71.