Brokers’ take: CGS-CIMB lowers target prices for property plays amid cooling measures

CGS-CIMB has lowered target prices for real estate companies PropNex and Apac Realty as it expects near-term market prospects to be dampened by the latest set of property cooling measures.

PropNex and Apac Realty’s target prices have been cut from S$2.07 to S$1.89 and S$0.84 to S$0.77, respectively. Both counters continue to be rated “add”. 

The cooling measures include raising the interest rate floor for Total Debt Service Ratio (TDSR) and Mortgage Service Ratio, as well as a wait-out period of 15 months for private property owners buying non-subsidised Housing Board (HDB) flats.

In a report on Monday (Oct 3), analyst Lock Mun Yee noted that the measures are likely to result in quieter market activity due to market sentiments being affected and 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 per cent, thus impacting marginal buyers,” Lock said. 

“The slower market activity could likely impact property brokers’ commission income in the near to medium term.”

Due to the expected drop in private resale market volume transaction assumptions and project HDB resale transactions, Lock has lowered her FY2022-24 earnings per share (EPS) forecasts for PropNex by 2.5 to 5.1 per cent. 

Apac Realty’s EPS forecasts have also been shaved by 3.3 to 5.9 per cent for the same period.

Despite lower projections, Lock continues to like both property plays for their strong fundamentals. 

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The analyst believes PropNex is well-placed to weather the slower market due to its strong agent force, with new income streams expected from the group’s business forays in H1 2022. 

Meanwhile, Lock highlights Apac Realty’s market and activity diversification could provide a stable base for the group. 

Noting that its new business unit, capital markets and investment sales, has “garnered good traction” since it was established earlier this year, the analyst believes Apac Realty’s diversified regional presence will enable it to ride on a recovery in any of these markets. 

As at the midday trading break on Tuesday, shares of PropNex were trading 1.4 per cent or S$0.02 higher at S$1.46, while shares of Apac Realty were up 0.9 per cent or S$0.005 at S$0.59.