PropNex - CGS-CIMB Research 2020-05-18: Strong Project Marketing Activity In 1Q20


PropNex - Strong Project Marketing Activity In 1Q20

  • PropNex's 1Q20 EPS of 2.05 Scts was ahead of our estimates, at 33.3% of our FY20F forecast.
  • We anticipate a weaker 2H20F due to adverse impact from the circuit breaker.
  • Reiterate ADD with a lower Target Price of S$0.625.

PropNex's strong 1Q20 performance

  • PropNex (SGX:OYY)'s 1Q20 PATMI surged 278.8% y-o-y to S$7.6m (EPS: 2.05 Scts) on an 82.7% y-o-y jump in revenue to S$135.6m. The improvement was led by a four-fold jump in commission income from project marketing services, which accounted for c.45% of the group’s topline.
  • Agency services also delivered a 26.9% increase y-o-y, led by a 40% and 16% rise in private and HDB resale commissions, respectively. As project marketing services are higher yielding, GP margins rose to 11.1% in 1Q20, from 9.9% in 1Q19.
  • There was also higher other income with the commencement of the group’s property valuation services department.

Overall residential market volumes grew in 1Q …

  • The better operating performance was achieved on the back of higher transaction volumes in the new and resale markets in 1Q. According to URA, sales of new private residential units in 1Q20 were 16.9% higher y-o-y, while the resale market saw a 12% rise in volumes. The HDB resale also reported a 22% growth in volume sales.

… but likely to weaken from 2Q due to circuit breaker impact

  • That said, with the extension of the circuit breaker until 1 Jun, we think the impact of weaker sales is likely to be felt in 2H20F.
  • Overall, PropNex expects private residential sales volume to contract by c.20% y-o-y in 2020, in line with our revised forecast.
  • In terms of impact of the circuit breaker on the property market, PropNex shared that it had continued with its online webinar trainings and consumer events, and managed to garner sales and market share during this period. It had secured marketing roles for c.89 projects as at end-1Q20.

Reiterate ADD rating

  • We lower our FY20-22F EPS by 12-16.1% as we tweak down our volume and selling price projections, but maintain our market share and margin assumptions. Accordingly, our Target Price is lowered to S$0.625, based on an average of 10x FY21F P/E and DCF valuation.
  • PropNex’s balance sheet remains strong, with a gross cash balance of S$89.8m (24.2 Scts/share) at end-1Q20. As such, we think PropNex can potentially maintain an unchanged DPS in FY20F (FY19: 3.5 Scts). This translates to an attractive yield of 7%.
  • See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
  • Key catalysts for PropNex include recovery in the private and public residential markets and a high conversion ratio of purchase options into confirmed sales.
  • Downside risks: protracted recovery of the property market due to weak macro outlook.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2020-05-18
SGX Stock Analyst Report ADD MAINTAIN ADD 0.625 DOWN 0.700