Dom Development: regional expansion to drive volumes higher (upgraded to BUY)

The easing of lending criteria at the beginning of 2023E improved affordability materially, restarting the sales momentum. The subsidised mortgages for first-time home buyers – in place since July – should provide a further boost from 3Q23E-onwards, especially in the regional cities. Despite the challenging 2022 (when rising construction costs and rate hikes dealt a blow to affordability), Dom’s GPM remains resilient, at c.30%. In the near term, supply may struggle to keep up with the recovering demand, as smaller developers seem to have often struggled to continue preparatory works on new projects last year. This may continue to drive prices higher. Dom expects margins to also remain strong in 2024E. We expect Dom’s ramp-up of supply in Tricity, Krakow and Wroclaw to push its sales to c.5-6k of units p.a. by 2025-27E, vs. c.3-4k p.a. in the past 5Y. We set our 12M price target (PT) at PLN 183/share, and upgrade our rating to BUY. Although, after the rally, the near-term upside may be limited, if Dom does manage to increase the volumes and, at the same time, maintains margins at least in the high-20%s, there could be material upside for both our forecasts and valuation in the medium term.