PropNex - UOB Kay Hian 2018-10-22: Execution In Good Hands

PROPNEX LIMITED (SGX:OYY) | SGinvestors.io PROPNEX LIMITED (SGX:OYY)

PropNex - Execution In Good Hands

  • PropNex continues to lead, in terms of market share across 16 of the 19 appointed launches marketed ytd.
  • In terms of pipeline, the company has secured another 17 mandates (totalling 9,843 units).
  • Other segments such as rental, landed and HDB resale segments, representing 40% of the total revenue, are expected to stay resilient in the face of cooling measures.
  • The group also widened its lead as the largest agency in Singapore, with 7,565 agents as at 1 Oct 18.
  • Maintain BUY with an unchanged target price of S$0.65.



WHAT'S NEW

  • We met with the management of PropNex to receive updates on the outlook of its operating performance and industry trends post-cooling measures.


STOCK IMPACT


Resilient across rental, landed and HDB resale segments.

  • Management guided that some c.40% of their total revenue in 1H18 will continue to be unaffected by cooling measures. In good and bad times, renters will continue to rent, providing a recurring income stream to the group.
  • The landed segment is also much less susceptible to a slowing down of foreign-buying interest and investment demand (second-time homeowners) owning to higher ABSDs and lower LTV limits, due to the existing absence of these two factors. Landed properties face restrictions on foreign ownership, and lack the appeal from an investment angle (ie large quantum involved).
  • The HDB resale market which sees c.20,000 transactions per year (c.2% of the 1m public housing stock) should also remain unaffected due to natural demand (eg housing upgrades, marriages/divorces and deaths).

Leading market share across appointed launches marketed-to-date.

  • PropNex led in 16 of the 19 projects marketed to date, closing the largest number of units (ahead of other joint marketing agencies). Its stellar record (market share in terms of overall units sold as at 1 Oct 18) includes: Tre Ver (35.7%), Daintree Residences (42.2%), Park Colonial (35.5%), Riverfront Residences (41.5%), Garden Residences (59.7%), Margret Ville (61.4%), The Tapestry (30%), Twin Vew (58.3%), Martin Modern (54.4%),120 Grange (60.5%) and The Enclave @ Holland (85.7%).
  • We believe PropNex’s strong showing is testament to the effectiveness of their training programmes, consumer seminars and their largest number of sales agents (7,565 agents as at 1 Oct 18) providing more dedicated manpower for the execution of its marketing strategy and capacity to handle higher transaction volumes.
  • Another interesting observation we noticed post-cooling measures, is the appointment of 5-6 agencies (instead of the usual top three) by more conservative developers. Still, the impact on PropNex’s market share appears to be limited.
  • In the Jadescape project, PropNex still attained the highest market share of 40% of total sales on the launch day, among the five agencies appointed by Qingjian.


Strong earnings visibility for project marketing segment going forward 2019.

  • In 9M18, PropNex was involved in 19 launches...

PropNex widens its lead as the largest agency by number of salespersons.

  • As at 1 Oct 18, PropNex’s sales force had grown by 13.1% ytd to 7,565 agents (vs 4.0% ytd by ERA). Compared to ERA (6,117 agents), PropNex is now 24% larger by...


EARNINGS REVISION/RISK

  • We retain our earnings estimates.


VALUATION/RECOMMENDATION

  • Maintain BUY and target price of ..... with reference to its closest comparable, Apac Realty (SGX:CLN) (predominantly Singapore-focused, and similar in terms of commission structure and operating segments).


SHARE PRICE CATALYST

  • Positive newsflow on new launches and take-ups.





Peihao LOKE UOB Kay Hian Research | Andrew CHOW CFA UOB Kay Hian | https://research.uobkayhian.com/ 2018-10-22
SGX Stock Analyst Report BUY MAINTAIN BUY 0.650 SAME 0.650



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