SAC Capital has kept its “hold” recommendation on PropNex despite its solid year in FY2021 amid a robust property market.
Analyst Peggy Mak has also lowered her target price estimate to $1.78 from $1.94 in her March 8 report. The lower target price comes as Mak sees that the group will experience a correction in sales volume for the FY2022 due to the low inventory of new units at a record low of 14,154 units.
There will also be a lower number of new launches during the year at around 7,000 units, compared to the average of 10,000 units annually. The cooling measures introduced in December 2021 are also likely to affect sales for the listed property developer, says the analyst.
“Potential buyers might also hold back in anticipation of new supply coming on stream. HDB plans to ramp up BTO launches to 23,000 yearly in 2022 and 2023 (FY2021: 17,100). 1HFY2022 government land sales (GLS) will yield 2,800 new units. More aggressive GLS is expected in 2HFY2022, translating into new launches in 2023,” she writes. “We estimate private new sales will fall 30%, private resale volume 20% lower and flat HDB demand.”
That said, prices will be sustained by the lower supply, rising construction costs and higher costs for new HDB flats,” says Mak.
“We expect prices of private resale to be stable, while HDB resale prices might gain 3% in FY2022,” she adds.
That said, FY2023 will look to be a better year for PropNex as it sees a recovery in sales volume, says Mak.
“Besides GLS, over 31,000 HDB flats (FY2021: [around] 26,000) will reach minimum occupation period in 2022. These HDB upgraders will look to acquire private residential units, with profits from sale of flats. Border re-opening will draw demand from expatriates and foreign buyers, notwithstanding higher ABSD and property tax,” she writes. “The drawback is heightened uncertainties caused by Russia/Ukraine conflict that could hurt consumers’ sentiment, especially for big ticket items”.
To this end, Mak has lowered her earnings estimates for the FY2022 by 5.3%.
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“Earnings are expected to fall 21.7% in FY2022, but rise 9.3% in FY2023. Dividend payout could be sustained to yield 5.3% and 5.8% in FY2022 and FY2023,” she says, as she ascribes an FY2023 P/E of 10x plus cash holdings of $146 million to arrive at her new target price.
Shares in PropNex closed 4 cents lower or 2.37% down at $1.65 on March 8.
Photo: Samuel Isaac Chua/The Edge Singapore
