Analysts are mixed on PropNex, considering its strong FY2021 results but with more caution over earnings and the impact of property cooling measures.
On Feb 24, PropNex reported earnings of $14.3 million for the 4QFY2021 ended December, 90.5% higher than earnings of $7.5 million in the same period the year before.
The surge in earnings were mainly attributable to higher agency and project marketing revenue.
The quarter’s earnings have brought the SGX-listed property agency’s FY2021 earnings to $60.0 million, more than double the earnings of $29.1 million in the FY2020.
Earnings per share (EPS) for the 4QFY2021 and FY2021 stood at 3.86 cents and 16.22 cents respectively on a fully diluted basis.
CGS-CIMB Research analyst Lock Mun Yee has upgraded her rating on PropNex to “add” from “hold” with an unchanged target price of $2.07, as the real estate agency’s earnings for the FY2021 surpassed expectations.
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PropNex’s earnings per share (EPS) of 3.86 cents for the 4QFY2021 and EPS of 16.22 cents for the FY2021 stood at 25.9% and at 107.5% of Lock’s forecast for the FY2021.
Despite the outperformance for the FY2021, Lock has lowered her revenue projections for the FY2022 to FY2023 by 0.3%-4.8% to “take into account the impact of the property cooling measures”.
That said, Lock has raised her EPS estimates for the FY2022 to FY2023 by 13.1%-15.7% as she lifts her gross profit (GP) assumption to 10.8%-11.4%, in line with the level achieved in FY2021, she explains.
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“Following the decline in share price, PropNex is trading at a cash-adjusted FY2022 P/E of 10x and offers investors attractive potential dividend yield of 6.1%,” says Lock.
A “stronger-than-projected residential market performance and contributions from enbloc transactions” is an upside risk for PropNex while slower market transactions on the back of property cooling measures could be one of PropNex’s downside risks, she adds.
DBS Group Research analyst Ling Lee Keng has maintained her “hold” rating on PropNex with a lower target price of $1.71 from $1.84, based on 13x FY2022 P/E (previously 12x).
“Our hold recommendation is premised on the stock’s rich valuation (+1.8 standard deviation of its historical mean) and the impact from the recent cooling measures, coupled with a higher interest rate environment,” Ling explains in her Feb 25 report.
The analyst believes 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,” she says. “In addition, approximately 40% of the inventory of new launches are in the core central region (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,” she adds.
Due to the lower supply of new launches, the analyst is expecting a higher contribution from the resale segment, which has lower gross profit margins.
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On this, Ling has cut her earnings estimates for the FY2022 to FY2023 by 15% and 10% respectively to factor in lower transaction volume assumptions going forward. However, she acknowledges that she is slightly more cautious on PropNex’s earnings compared to the estimates pegged by the consensus.
The reduction in her target price also reflects her lower transaction assumptions.
“We believe PropNex deserves a higher rating given its growing dominance in the Singapore property market,” she writes.
According to Ling, “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” will pose as key risks to PropNex’s earnings.
Finally, PhillipCapital analyst Paul Chew has downgraded his “accumulate” recommendation to “neutral”, with a lower target price of $1.74 from $2.08.
“We expect a lull in transactions this year following the introduction of more cooling measures, namely the increase in stamp duties by 5% to 10% points and lowering of the total debt servicing ratio (TDSR) from 60% to 55%,” says Chew.
In his report on Feb 28, Chew says that new homes sales are expected to decline significantly due to the low unsold inventory, particularly in the popular outside central region (OCR) region. “OCR inventory is only 3,972. The lowering of TDSR will cap the ability to leverage and turn pricing even more elastic,” he writes. “Another headwind will be the time lag for upgraders to purchase their units.”
“The incremental 5% points of stamp duty to 17% for 2nd home purchase means an extra $65-75k of equity for an upgrader before securing a refund. This implies the upgrader will likely rent premises and collect proceeds before upgrading,” he adds.
Additionally, lower supply from developers, delay in HDB BTO units, rising construction costs and improving economic conditions will keep property prices elevated. “PropNex expectations are for private residential home prices to rise 3%-5% in 2022 (APAC Realty: +1-3%), and HDB resale prices are expected to climb higher by 6%-8% (APAC Realty: +4-8%),” says the team.
Dividends however continue to be attractive at 5% for FY2022, as the company undergoes a year of consolidation following record earnings last year, says Chew.
As at 2.26pm, shares in PropNex are trading flat at $1.72.
Photo: Samuel Isaac Chua/The Edge Singapore
