WOOD Flash - Dom Development: 3Q22 - en route to another year of record profit

Affordability has deteriorated dramatically on the Polish housing market this year, due to the combination of high rates and tighter creditworthiness criteria, which have led to a collapse in the number of transactions. Despite the challenges, Dom Development continues to fare relatively well in this environment, and sold c.700 apartments in 3Q22. We believe it could achieve a similar result in 4Q22E, which would bring the total 2022E sales to around 3k. From a P&L perspective, 2022E is shaping up to be a record year, with high prices, a still-strong gross profit margin and handovers of almost 4k apartments. As of the end of September, Dom had a backlog of 4.8k apartments, worth PLN 3.1bn, which have been sold, but not yet delivered. This means that Dom has already largely secured next year’s P&L earnings. Although visibility on the extent of margin erosion ahead, and the pace of sales in 2023E, remains limited, we note construction costs seem to have stabilised, and prices appear to be growing, albeit trailing inflation slightly, on average. The net cash on the balance sheet should allow Dom to pay a dividend in excess of PLN 10/share from both the 2022E and 2023E net profits, equivalent to a double-digit yield on the current share price. With the strong balance sheet and brand, we believe the company could emerge stronger from the current downturn, which could drive a consolidation of the Polish homebuilding market.