Brokers' take: DBS says PropNex is positively priced in; initiates with 'hold'

PROPNEX OYY is currently "priced to perfection", particularly since there is a high risk of government intervention to cool the property market, DBS Group Research said in a note on Friday.

The brokerage team initiated coverage on the real estate agency with a "hold" call and target price of S$1.83, which is based on 12 times the brokerage's estimates for FY2022 earnings.

Shares of PropNex were trading at S$1.80 as at 10.05am on Friday, up S$0.02 or 1.1 per cent. DBS noted that PropNex is trading close to its all-time high valuation, at around 11.7 times the brokerage's estimates for FY2022 earnings.

The brokerage team also said the stock is trading at a 12 per cent premium to its closest peer APAC Realty, and is in line with two other international peers' average of 11.8 times.

DBS said it applied a peg close to two standard deviations of PropNex's historical average to reflect the current strong residential property market sentiment in Singapore, but added that it is not attributing a higher target valuation peg due to the risk of property cooling measures ahead.

It noted that the Singapore residential property price index (PPI) is up 7.1 per cent in the past year and up 8.9 per cent since the last set of cooling measures in 2018. The measures were previously invoked after the PPI rose 9 per cent over five quarters.

Nevertheless, barring the cooling measures, DBS expects property prices to continue rising in 2022 due to pent-up demand amid Singapore's reopening, more property upgraders, a low interest rate environment, construction delays, fewer new launches and a depleting inventory of unsold new launches.

PropNex is likely to continue riding on the strong property market due to its expanding share of the various market segments. However, the company's gross profit margins may be weighed down by the lower supply of new launches, as there will be a higher revenue mix from the resale segment that has a slightly lower gross profit margin, DBS said.

The brokerage team also said it expects the real estate agency will pay dividends of S$0.10 per share for FY2021 and FY2022, which implies dividend yields of 5.6 per cent.

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