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PhillipCapital downgrades PropNex on recent share price rally, which has already priced in positives

Felicia Tan
Felicia Tan8/18/2021 06:11 PM GMT+08  • 2 min read
PhillipCapital downgrades PropNex on recent share price rally, which has already priced in positives
Despite the downgrade, PhillipCapital has raised its target price estimate to $2.08 on the back of higher earnings estimates.
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PhillipCapital analyst Paul Chew has downgraded his recommendation on PropNex to “accumulate” from “buy” following its recent share-price rally, which has “priced in most of the positives” on the counter.

Chew’s downgrade in an Aug 16 report, comes four days after UOB Kay Hian’s downgrade to “hold” on the back of PropNex’s better-than-expected performance.

Despite the downgrade, Chew has raised his target price estimate to $2.08 from $1.36 previously as he ups his FY2021 PATMI estimate by 53% to $63.5 million.

To this end, Chew has also upped his revenue target for the FY2021 by 77%.

In addition, he has lifted his dividend estimates to 11.5 cents for the FY2021 from 6.5 cents following PropNex’s interim dividend of 5.5 cents, almost three times higher than the 1.5 cents distributed in the same period the year before.

The upgrade in earnings estimates comes as Chew expects the property group’s 2HFY2021 results to “remain buoyant”.

The transaction momentum is underpinned by a virtuous cycle from HDB upgraders, which is supporting demand for resale units “due to their price differential”.

According to Chew, the next source of demand could come from foreign buyers when they return after borders re-open.

Cooling measures are also unlikely to take place in the near-term as TDSR has contained a large part of speculation in the residential segment.

Recent comments made by the Singapore government also suggest that the market is currently not overheated and that intervention for the time being is not required.

In fact, Chew notes that only a double-digit rise in the property index over 12 months warrants a consideration in intervention, compared to the 7.1% increase in the past four quarters.

That said, PropNex’s revenue for the FY2022 may be affected by the lack of new launches, as the industry’s inventory-to-sales ratio currently stands at a four-year low of 1.5 years.

However, the group’s entry into en-bloc brokerage could mitigate the potentially lower figure, he says.

Shares in PropNex closed 3 cents higher or 1.6% up at $1.91 on Aug 18.

Photo: PropNex

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