PropNex - CGS-CIMB Research 2020-02-27: Ending The Year On A High Note


PropNex - Ending The Year On A High Note

  • PropNex's 4Q/FY19 EPS of 2.22/5.42 Scts were ahead of expectations, at 54%/132% of our full-year forecasts.
  • Boost from a greater proportion of higher-margin project marketing revenue.
  • Reiterate ADD, with a higher Target Price of S$0.70.

4Q19 PATMI beat expectations

  • PropNex (SGX:OYY)’s 4Q19 PATMI surged 349.5% y-o-y to S$8.2m, on a 91.7% y-o-y jump in revenue to S$131.0m. The improvement was led by an increase in commission income from project marketing services, as more transactions were completed following the recovery in the private residential market.
  • Property marketing services generated 42% of the group’s 4Q19 topline, and led to stronger gross margins of 11.4% (vs 9.4% in 4Q18).
  • FY19 PATMI of 20.0m was ahead of our expectations, at 132% of our full-year forecasts.
  • PropNex proposed a total final and special DPS of 2.25 Scts, bringing its full-year DPS to 3.5 Scts, which translates into a yield of 6.25%.

Gaining overall market share

  • PropNex also garnered an estimated 1-11% pts y-o-y additional market share across its project marketing and agency services activities. Singapore’s Urban Redevelopment Authority (URA) recorded average monthly primary private home sales of 814 units in 4Q19 (higher than the 612 units/month recorded in 4Q18).
  • In addition, the resale market also stabilised, with an average of 820 units/month changing hands in 2H19 (compared with 674 units/month in 4Q18).
  • We think this is encouraging and maintain our primary private transaction volume forecast of a stable 9,000-10,000 units for FY20F. Sales of HDB resale units also remained relatively stable at c.2,100 units/month.

Strong balance sheet

  • PropNex’s balance sheet remains strong with a net cash balance of S$81.6m as at end-FY19. This puts the group in a position to explore diversification opportunities.
  • In Nov 19, PropNex took a 20% stake in PropNex Realty Sdn Bhd (PRSB). This is in line with its overseas expansion strategy of taking direct stakes in licensee companies after they have sufficiently scaled up. PropNex said that PRSB started with 60 agents in Mar 18 and currently has nearly 500 agents (as at end-3Q19) and is profitable.

Reiterate Add

  • We lift our FY20-21F EPS forecasts by 44-46% as we factor in higher gross margins of 10.2%, which is in tandem with FY19 but ahead of our previous expectation of 9%. We believe this is achievable as the primary residential sales volume remains stable. Accordingly, our Target Price rises to S$0.70, based on an average of 10x FY21F P/E and DCF valuation.
  • See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
  • Key potential catalysts include a higher proportion of potential buyers exercising their options to purchase, while downside risks include cooling measures from the government.

LOCK Mun Yee CGS-CIMB Research | 2020-02-27
SGX Stock Analyst Report ADD MAINTAIN ADD 0.70 UP 0.680