DBS Group Research analyst Ling Lee Keng has downgraded her recommendations on PropNex and APAC Realty to “fully valued”.
Both counters were downgraded from “hold” previously.
Ling’s reports come after the government introduced a fresh set of cooling measures on Sept 30, less than a year after the last round of cooling measures was announced in December 2021.
This time, the new measures are more targeted toward the Housing and Development Board (HDB) segment, while the reduction in the total debt servicing ratio (TDSR) would reduce affordability and also affect the private property market.
On this, Ling has cut her transaction volume projections for private new launch and resale segments by 6% to 30% for the FY2022 and FY2023. Ling has also lowered her HDB resale transactions by 4%-15% to 25,500 units and 23,000 units for 2022 and 2023 respectively.
PropNex’s target price lowered to $1.19
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To this end, the analyst has cut her earnings estimates for PropNex by 9%-35% based on lower transaction assumptions, even though she acknowledges that her earnings estimates are ‘more cautious’ than that of her peers’. Accordingly, she has lowered her target price to $1.19 from $1.71 previously.
“[PropNex’s new target price] is based on 13x FY2023 P/E, which is at +1 standard deviations (s.d.) of its historical mean,” Ling writes. “We believe PropNex deserves a higher valuation vs. peers given its growing dominance in the Singapore property market. However, given the overhang from the cooling measures, we cut PropNex to ‘fully valued’.”
However, the analyst sees PropNex’s earnings recovering in the FY2024 with its growing sales force, which could help to mitigate some impact.
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PropNex’s salesforce has increased by 8.8% year-to-date (ytd) to August. It is targeted to reach 12,000 by the end of 2022.
APAC Realty’s target price lowered to 41 cents
On the back of her lower transaction assumptions, Ling says she expects APAC Realty’s earnings for the FY2022 ending December to drop by 39%. She also expects the company’s earnings to drop by another 33% in the FY2023 before experiencing a gradual recovery in the FY2024.
She has also lowered her target price estimate for APAC Realty to 41 cents from 67 cents previously.
The new target price is pegged to around 10x of APAC Realty’s FY2023 earnings, equivalent to its average four-year P/E. “[This is] on the back of the lower earnings as we cut our transaction volume assumptions.”
Like her view on PropNex, Ling says she is “more cautious on the outlook” as she is expecting fewer new launches while inventory is depleting.
As at 3.59pm, shares in PropNex and APAC Realty are trading at $1.44 and 57.5 cents respectively.
