Dom Development: homebuilders critical to alleviating shortage (stays BUY)

Poland is facing an acute housing shortage. Rate hikes, an economic slowdown, rising construction costs and labour shortages are all challenging for developers, and could lead to wider affordability issues. That said, with offer prices for new apartments at c.EUR 2.7-2.8k/sqm, Warsaw, and Polish cities in general, remain affordable in a regional context. Further price increases seem likely, in our view, given the exceptionally low number of units on offer. We are seeing a continued wave of cash purchases, as people buy apartments to protect savings from inflation. Rents, which are up some 15-30% in Warsaw over the past month, improve the investment proposition further. In this context, we see the recent underperformance by Dom Development (Dom) as a buying opportunity. With 6k apartments under construction, 18k in the pipeline, a robust net cash balance sheet, a long track record and experienced management, Dom is well-positioned to navigate the challenging environment ahead, in our view. We forecast the gross profit margin (GPM) to decline to 26% by 2023E, from 33% in 2021. Our 2022-24E estimates still imply a 10-11% dividend yield and 8-9x P/Es, on the current share price. We maintain our BUY recommendation on Dom Development, while reducing our 12M PT to PLN 121 (from PLN 148).