PROPNEX LIMITED (SGX:OYY)
PropNex - A Strong Finish To 2019
- PropNex's 4Q19 results came in better than expectations, bringing 2019 net profit to 114% of our forecast. PropNex is expected to ride on strong earnings visibility from a pipeline of 38 new projects (13,054 units), while its private and HDB resale segments are stabilising.
- While COVID-19 impact is limited so far, the group stands on a solid cash hoard of S$81.6m (40% of its market cap) to drive future growth and dividend distributions.
- Maintain BUY and raise target price to S$0.68 (from S$0.62).
4Q19 RESULTS
Results above expectations.
- PropNex (SGX:OYY) reported 4Q19 net profit of S$8.2m (+349.5% y-o-y), bringing 2019 net profit to 114% of our forecast. 4Q19 revenue increased to S$131.0m (+6.9% q-o-q, +57.9% y-o-y), due mainly to the increase in commission income from project marketing services (+243% y-o-y to S$39.2m).
- The increase can be attributed to the higher number of units completed in 4Q19 following the recovery of the private residential market in 9M19 after the impact of additional cooling measures in Jul 18.
Dividend of 3.5 S cents/share, flat yoy.
- PropNex has proposed a final dividend of 1.5 S cents and special dividend of 0.75 S cents, which brings total payout for 2019 to 3.5 S cents/share. This provides a dividend yield of 6.4% (based on closing price of S$0.55) and represents a payout ratio of 64.6% (2018: 66.7%).
Market leader in project launches; strong earnings visibility from 2020 launch pipeline.
- PropNex continues to expand its market share in new launches (48% in 2019), selling the most number of units among joint marketing agencies (JMA) for the top 10 selling projects in 2019, such as Treasure at Tampines (57.7%), Parc Esta (43.6%), Florence Residences (67.4%), Parc Clematis (41.4%), Piermont Grand (38.6%), Avenue South (49.6%) and The Tre Ver (49.6%).
- In 2019, private new residential sales registered 9,912 units (+12.7% y-o-y), demonstrating the appeal (and resilience) of Singapore’s property industry despite global uncertainties and cooling measures. For 2020, 38 projects (13,054 units) are expected to be ready for launch, of which PropNex has been appointed to handle 25 projects (11,864 units).
- We believe PropNex will continue to ride on this pipeline with its strong execution along with sensitive developers amid the current low interest rate environment (ie supportive of home mortgages).
HDB resale: Catalyst from the Enhanced CPF Housing Grant.
- Management is expecting sales volumes to breach 25,000 units in 2020. They expect the introduction of Enhanced CPF Housing Grant (with broader guidelines) in Sep 19 to increase affordability of homes for first-time buyers.
- We are already seeing the impact in the 4Q19 HDB resale statistics (6,339 units moved), which is impressive for a seasonally weak quarter. Based on management projections, some 24,163 HDB flats will also be reaching the minimum occupation period in 2020, which will further support resale demand.
Private resale stabilising.
- Management noted that demand has stabilised largely in 2H19 (where transaction volume was at about 2,200 units per quarter), and expects 2020 volume to cross the 10,000-unit mark.
Strong cash hoard of S$81.6m (40% of market cap) for potential distributions, acquisitions and organic growth.
- Management alluded to its intention (not commitment) to pay out at least 50% of the group’s net profit for dividends. They have also been looking into acquisition opportunities (ie such as its 20% stake in PropNex Malaysia's enlarged share capital) in a disciplined manner.
- The cash pile could also be invested in its people (training, boot-camps), technology and infrastructure, continuing to grow its agent network (8,452 sales persons as at 27 Feb 20).
Appointment of new Chief Commercial Officer, Priveen Raj Naidu.
- As part of the group's plans to evolve beyond a traditional property brand, PropNex has created a new role, where Mr Priveen will be in-charge of commercial strategy, developing complementary revenue streams, further enhancing efficiency, elevating the overall consumer experience, driving business growth, and increasing market share.
- Mr Priveen has almost two decades of experience across service, hospitality and airline industries. He previously founded an aviation consultancy, and worked in various capacities in firms, such as AirAsia and Singapore Tourism Board.
Outlook: COVID-19 has limited impact.
- The outbreak of Covid-19 (since Jan 20) has only limited impact, given that the first two months of 2020 with Chinese New Year holidays are usually quieter periods with fewer launches. The training and development of its sales people has not been affected. While there were initially fewer attendees at its consumer seminars (during the peak of the Covid-19 outbreak), the crowds have returned since.
EARNINGS REVISION/RISK
- We introduce our 2022 net profit forecast of S$22m. We also raise 2020-21 net profit forecasts by 5-11% on the back of lower operating overheads assumptions.
VALUATION/RECOMMENDATION
- Maintain BUY and raise target price to S$0.68 (previously S$0.62), based on 12x 2020F PE, with reference to its closest comparable, APAC Realty (SGX:CLN) (11x) which is also pre-dominantly Singapore-focused and similar in terms of commission structure and operating segments.
- See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
SHARE PRICE CATALYST
- Positive newsflow on new launches and take-ups.
Loke Peihao
UOB Kay Hian Research
|
Adrian Loh
UOB Kay Hian
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https://research.uobkayhian.com/
2020-02-28
SGX Stock
Analyst Report
0.68
UP
0.620
