PropNex - CGS-CIMB Research 2020-11-12: A Strong Quarter


PropNex - A Strong Quarter

  • PropNex's 3Q20/9M20 EPS of 1.83/5.84 cents beat our expectations, at 29.8%/95.4% of our FY20F forecast.
  • Increased share of higher-yielding project marketing services raises market transaction volume projections on the back of strong domestic demand.
  • Reiterate ADD rating with a higher target price of S$0.825.

PropNex's 3Q20 results highlights

  • PropNex (SGX:OYY) recorded a 3.3% y-o-y decline in 3Q20 revenue to S$118.5m. However, PATMI increased 10.6% y-o-y to $6.8m (EPS: 1.83 cents) thanks to a 0.5% pt improvement in gross margin, on the back of a greater proportion of income derived from higher-margin project marketing services and reduced expenses, partly offset by lower income from agency services due to the impact of the circuit breaker.
  • For 9M20, PropNex recorded a PATMI of S$21.6m, +82.8% y-o-y (EPS: 5.84 cents).

Increasing income from higher-yielding project marketing services

  • PropNex saw a 14.6% y-o-y increase in commission income from project marketing services to S$51.9 in 3Q, which accounted for c.44% of the group’s topline as the group continued to gain market share.
  • PropNex estimates that it garnered a 49.1% market share of new project sales between Apr and Oct 2020. The improvement largely offsets a 13.2% y-o-y decline in agency services on slower private and HDB resale and leasing transactions due to the initial impact of the circuit breaker.

Raising its overall market transaction volume assumption

  • Looking ahead, PropNex expects the strong domestic demand in both the private residential and public housing segments to continue into 4Q20F.
  • According to URA, private resale transactions surged 45.7% y-o-y to 3,467 units in 3Q20, the highest level since 2Q18. Meanwhile, the Housing Development Board (HDB) also reported a 24% y-o-y expansion in HDB resale transactions in 3Q20.
  • Management estimates that primary and resale transactions in the private residential market could reach 19,500 units in 2020F, exceeding 2019’s 19,150 by 1.8%. It also expects private home prices to rise by 1% y-o-y in 2020F. To tap into this strength, PropNex’s strategy of attracting potential buyers with its online webinar trainings and consumer events and growing its agent base had enabled it to increase market share.

Reiterate ADD rating

  • We raise our PropNex's FY20-22F EPS forecasts by 18.1-22.7% as we increase the overall market transaction volume assumption. Accordingly, our target price is increased to S$0.825, based on an average of 10x FY21F P/E and DCF valuation.
  • With its projected higher earnings performance and strong balance sheet, with a gross cash balance of S$94.8m at end-3Q20, we believe there could be upside risk to PropNex's FY20F dividend (FY19: 3.5 cents), assuming an unchanged payout ratio of 65%.
  • 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 the weak macro outlook.

LOCK Mun Yee CGS-CIMB Research | 2020-11-12
SGX Stock Analyst Report ADD MAINTAIN ADD 0.825 UP 0.708