CGS-CIMB Analyst take
The continued rise in Singapore’s residential market is being felt by both buyers and renters. That has been well-documented over the past few months.
So it seems natural that a company like Propnex Ltd (SGX: OYY) would benefit. It’s one of the leading real estate portals in Singapore with updated property listings and market information.
However, recently there have been some property cooling measures announced that could put a dampener on sentiment for both the property market and the stock.
The research team at CGS-CIMB Securities maintains our “ADD” call on Propnex but cuts our target price S$1.89 (from S$2.07 previously).
Here’s what Singapore investors should know about the latest property cooling measures and the likely impact on Propnex.
Property cooling measures will dampen near-term sentiment
A recent round of property cooling measures was announced on 30 September, 2022. These included some key constraints:
- Raising the interest rate floor for the computation of Total Debt Service Ratio (TDSR) and Mortgage Service Ratio (MSR) to 4% (from 3.5%)
- Lower loan-to-value (LTV) for HDB housing to 80%
- Imposing a wait-out period of 15 months for private property owners buying non-subsidised HDB flats
These measures are likely to result in lower volume activity in the immediate future as market sentiment is negatively impacted.
There will also be an adverse effect on potential buyers that are evaluating the impact of these changes on affordability.
All-in, we forecast that raising the interest rate floor for TDSR computation could reduce affordability by around 5-6%, impacting marginal buyers.
Slowing market activity could then have knock-on effects, such as impacting property brokers’ commission income in the near to medium term.
Tweaking down EPS estimates
We slightly dial down our private resale market volume transaction assumptions for Propnex in FY2022/FY2023 to -25%/0% year-on-year from -28%/+2% year-on-year.
We also project that HDB resale transactions will shrink by 10% year-on-year in FY2023 as we believe market activity could cool in the near term.
Subsequently, our earnings per share (EPS) estimates for Propnex are lowered by 2.5-5.1%. however, with a strong agent force of close to 12,000, we believe Propnex should be able to successfully navigate the slower market.
New segments, new opportunities
Elsewhere, Propnex has established a series of new opportunities in the first half of 2022 as it looks to expand its business base.
In addition to strategically expanding into the Good Class Bungalow (GCB) segment to tap ultra-high net worth buyers, it has also grown its Australian footprint by establishing a Melbourne office.
The team has secured a number of collaborations with builders and developers in both the Melbourne CBD and surrounding growth suburbs.
Maintain our Add rating
For Propnex, following our lowered earnings estimates, we cut our target price to S$1.89 (from S$2.07 previously) based on a blend of net cash-adjusted PE and DCF valuation.
It should be noted that Propnex offers investors a 7.1% FY2022 forecast dividend yield and that 25% of its market cap is backed by cash.
Potential re-rating catalysts include stronger-than-projected residential market performance and contributions from enbloc transactions.
Disclaimer: CGS-CIMB Securities REITs & Property Analyst Mun Yee Lock doesn’t own shares of any companies mentioned.
