Brokers' take: Analysts mixed on PropNex despite strong FY21 results

ANALYSTS have mixed views towards PropNex after the company posted a 90.5 per cent growth in net profit for the fourth quarter of FY2021.

Phillip Securities on Monday (Feb 28) downgraded its call on the real estate company to "neutral" from "accumulate" and lowered the target price to S$1.74 from S$2.08 previously.

DBS Group Research on Feb 24 maintained "hold" on the stock with a lower target price of S$1.71 from S$1.84 previously.

On the other hand, CGS-CIMB, on Feb 24 as well, upgraded its call on the counter to "add" from "hold" with an unchanged target price of S$2.07.

Phillip Securities analyst Paul Chew said he expects a sharp decline of 28 per cent in net profit for the company in FY2022 due to the cooling measures announced on Dec 16, 2021.

He projects stamp duties will increase by 5 to 10 percentage points and total debt servicing ratio will decrease by between 5 and 10 per cent in the FY2022-2023 period.

Chew said new home sales will "bear the brunt of the weakness". Sales in this segment are expected to decline significantly from the low unsold inventory especially outside the central region.

For private resales, the analyst forecasts declines but not as drastic as the projected drop in new home sales. He thinks HDB resales will be the most resilient on the back of grants, delay in new units and healthy household formation.

The analyst noted that with a record low inventory of 14,100, higher stamp duties and total debt servicing ratio, and more cautious buyer sentiment, transactions will be subdued.

Forecasts for FY2022 profit after tax and minority interests (PATMI) were cut by 27 per cent to S$43.5 million and weighted average cost of capital was raised "modestly" from 9.8 to 10 per cent on higher interest rates.

Meanwhile, DBS analyst Ling Lee Keng said target price was reduced as earnings were cut by 10 to 15 per cent on expectations of fewer transactions from the cooling measures.

Like Chew, Ling believes that new home sales will be hit the hardest from the new measures. She said growth potential for PropNex will be held back by lower volumes of new launches and units sold in the next few years and attributed this to the depleting inventory of unsold new launches and construction delays.

She agrees that the impact on private resales and HDB resales will be more "muted" due to the lack of supply of new launches, delays in new unit construction and those being cheaper alternatives to new sales.

To factor in the projected impact in the short term, Ling cut transaction volume assumptions for the various segments - new home sales, private resales and HDB resales. She expects overall transaction value to ease about 30 per cent in FY2022.

CGS-CIMB lowered its FY2022 to FY2023 revenue projections slightly by 0.3 to 4.8 per cent to factor in the new property cooling measures as well but has a positive outlook for PropNex.

Analyst Lock Mun Yee noted the company's strong earnings for the fiscal year, which came in 107.5 per cent higher than CGS-CIMB's expectations. She believes that with the growth in PropNex's salesforce to 11,125 agents, the company will be able to garner more market share.

The analyst also highlighted the growth in agency services from the increase in private and HDB resales in FY2021 and said this has potential to underpin the company's earnings outlook.

Lock raised earnings per share estimates for FY2022-23 by 13.1 to 15.7 per cent as she lifted gross profit assumptions to 10.8 to 11.4 per cent, in line with the level achieved in FY2021.

Shares of PropNex ended 2.3 per cent or S$0.04 lower at S$1.72 on Monday.