Simons Trading Research

Author: simonsg   |   Latest post: Tue, 13 Dec 2022, 10:52 AM


PropNex - Fresh Property Cooling Measures Applying the Brakes

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  • The government introduced more property cooling measure late last night, largely aimed to moderate demand in the HDB resale market to ensure affordability. Even though buyers may take some time to digest the new rules, we think the impact should be quite modest compared to the previous rounds.
  • In our view, the latest measures are likely to come as a sigh of relief to investors and remove a major overhang given the government is careful not to be overzealous to cool the Singapore residential market.

More Prudent Borrowing and Longer Wait

  • Refer to the MAS-MND-HDB joint press release, with effect from 30 Sep 2022, the measures include tightening maximum loan quantum limits and lowering the loan-to-value limit for HDB loans to 80% from 85%. But these should not materially affect first-time and lower-income flat buyers as these potential homeowners still receive significant housing grants.
  • The agencies will also introduce a 15-month wait-out period for private home owners buying HDB resale flats. However, this looks like a temporary measure to moderate demand for resale flats, which the government will review depending on overall demand and market changes.

Lower Resale Volumes Partly Offset by New Launches

  • For private residential properties, a higher 4% interest rate will now apply for Total Debt Servicing Ratio and Mortgage Servicing Ratio.
  • In 1H22, HDB and private resale markets accounted for ~14% and 26% of PropNex (SGX:OYY)'s total revenues, while project marketing makes up about 39%.
  • Refer to the report attached below for details of financial forecast. We reduced our FY22-24E turnover forecast for PropNex slightly by 1-2% on lower resale volumes but keep EPS forecasts due to higher transaction values and take-up rate for new launches that typically command better margins.

PropNex – Strong Balance Sheet With Yield of > 7%

  • While total transaction volumes may slow down in the near term amid rising interest rates, we reckon PropNex should be less affected given its increasing market share along with its growing sales force.
  • Coupled with the group’s cash-generative business model, PropNex's balance sheet remains rock solid with net cash over market cap of almost 24% (or S$0.36 per share). Hence, we believe PropNex can well afford to maintain its high dividend payout of at least 70%. This would also translate into an attractive prospective yield of more than 7%.

Source: Maybank Research - 30 Sep 2022

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