Hitting a speed bump
- We think property cooling measures could impact near-term market activity.
- We lower our yoy residential volume transactions assumptions for APAC.
- Maintain Add rating with a lower TP of S$0.77.
Latest round of cooling measures could slow market activity
The recent round of property cooling measures announced on 30 Sep 2022 which included i) raising interest rate floor for Total Debt Service Ratio (TDSR) and Mortgage Service Ratio (MSR) computation to 4% (from 3.5%), ii) lowering loan-to-value (LTV) for HDB housing loans to 80% and iii) imposing a wait-out period of 15 months for private property owners (PPOs) buying non-subsidised HDB flats, are likely to result in quieter volume activity in the immediate term as market sentiment is affected as well as potential buyers evaluating the impact of these changes on affordability. In all, we think that raising the floor interest rate for TDSR computation could dial down affordability by 5-6%, thus impacting marginal buyers. That said, the wait-out period for private property owners before they can purchase HDB resale units may push demand for rental apartments in the near-term. We believe the slower market activity could likely impact property brokers’ commission income stream in the near- to medium-term.
We lower our FY22-24F EPS forecasts by 3.3-5.9%
We tweak down our private resale market volume transaction assumptions for APAC in FY22F/FY23F to -30%/0% yoy from -28%/+2% yoy as well as project HDB resale transactions to shrink by 10% yoy in FY23F as we think market activity could cool in the near-term. Accordingly, our FY22-24F EPS forecasts are lowered by 3.32-5.86%. We maintain our assumption that APAC would maintain its current market share of 41.9% and 41.8% share of the private and HDB resale markets, respectively, as at 1H22.
Market and activity diversification could provide a stable base
That said, APAC has continued to diversify its business with the establishment of its Capital Markets & Investment Sales (CMIS) business unit, which engages high net-worth investors, family offices and institutional investors with services related to commercial, industrial and other segments, which has garnered good traction since it was established in Feb 2022. In addition, it has presence in other regional markets such as Indonesia, Thailand, Malaysia and Vietnam. This will likely enable the group to ride on any market recovery in these markets.
Maintain an Add rating
Following our earnings revision, we lower our TP to S$0.77, based on an unchanged blend of net cash-adjusted P/E multiple and DCF valuation. We believe share price is likely supported by a projected FY22F dividend yield of 8.9%, based on an assumed 75% payout ratio. Potential re-rating catalysts: ability to gain further market share in both the primary and secondary residential segments and identifying new growth drivers. Key downside risk: delayed recovery of the property market due to a weak macro outlook and continued loss of market share.