PropNex - CGS-CIMB Research 2020-08-17: Gaining Market Share In 2Q20


PropNex - Gaining Market Share In 2Q20

  • PropNex's 2Q/1H20 EPS of 1.96/4.01 Scts beat our expectations, at 36.2%/74% of our previous FY20 forecast.
  • Income from higher-yielding project marketing services to remain high on the back of increased market share.
  • Reiterate ADD, with a higher Target Price of S$0.708.

PropNex's 2Q20 results highlights

  • PropNex (SGX:OYY) reported a 15% y-o-y increase in 2Q20 revenue to S$105.9m. PATMI surged a much higher 96.1% y-o-y to S$7.3m (EPS: 1.96 Scts), thanks to 2.1% improvement in gross margin on the back of a greater proportion of income derived from higher-margin project marketing services, and reduced other expenses.
  • For 1H20, PropNex recorded PATMI of S$14.8m, up 160% y-o-y (EPS: 4.01 Scts).
  • PropNex proposed an interim dividend of 1.5 Scts, translating to an annualised yield of 2.5%.

Increasing income from higher-yielding project marketing services

  • PropNex saw its commission income from project marketing services jump 148% y-o-y to S$49m, which accounted for c.47% of its topline as the group continued to gain market share. This more than offset a 23% y-o-y decline in agency services on slower private and HDB resale and leasing transactions due to the initial impact of the nation's circuit breaker.
  • According to the Urban Redevelopment Authority (URA), private resale transactions fell 60% y-o-y in 2Q20. Meanwhile, the Housing Development Board (HDB) reported a 45% y-o-y decline in HDB resale transactions in 2Q20.

Gaining market share through successful marketing strategies

  • We anticipate private residential sales volume to contract by c.20% y-o-y in 2020F to 8,000 units. Meanwhile, PropNex’s strategy to attract potential buyers with its online webinar trainings and consumer events had enabled it to increase its market share.
  • Management shared that PropNex had captured c.53% of the new launch segment from Apr (during the circuit breaker period) to Jul 2020. According to PropNex, another 29 new projects are being planned for launch by developers in the coming quarters. Hence, we believe that PropNex can continue to maintain its market share. This will likely continue to underpin the group’s elevated gross margins in the near term, in our view.

Reiterate ADD rating

  • We raise our PropNex's FY20-22F EPS by 13-16.8% as we tweak up our market share and gross margin assumptions. Accordingly, our Target Price increases to S$0.708, 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$99.7m as at end-2Q20.
  • See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
  • Key potential re-rating catalysts for PROP 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 market due to weak macro outlook.

LOCK Mun Yee CGS-CIMB Research | 2020-08-17
SGX Stock Analyst Report ADD MAINTAIN ADD 0.708 UP 0.625