PropNex - CGS-CIMB Research 2021-02-25: Ending The Year On A High Note


PropNex - Ending The Year On A High Note

  • PropNex's 4Q/FY20 earnings per share of of S$0.0203/S$0.0786 beat our expectations, at 33.1%/128.5% of our FY20 forecast.
  • PropNex expects strong volume momentum in the private resale segment to continue in FY21F.
  • Reiterate ADD with a higher target price of S$0.888.

PropNex's 4Q/FY20 results highlights

  • PropNex (SGX:OYY) reported a 18.8% y-o-y rise in 4Q20 revenue to S$155.6m. However, PATMI decreased 8.9% y-o-y to $7.5m (earnings per share: S$0.0203) on the back of lower gross profit margin of 10% (vs. 11.4% in 4Q19) due to higher proportion of lower-margin product mix, impairment, and share of loss from associate of S$0.7m.
  • For FY20, PropNex recorded a 22.8%/45.2% improvement in revenue/ PATMI to S$515.6m/S$29.1m. Its gross cash position stood at S$105.8m (or S$0.286 per share) as at end-Dec 2020.
  • PropNex proposed a final dividend of S$0.04 per share, bringing FY20 dividend to S$0.055 per share, translating to a 6.8% yield.

Gained market share in project marketing in FY20

  • PropNex posted a 62.1% jump in commission from project marketing services to S$218.7m for FY20 as the group continued to gain transaction volume market share to 48.8%. Its overall market transaction value also improved 3.5% y-o-y.
  • Looking ahead, PropNex expects a slower growth trajectory from this business segment in FY21F. Our current projection is that new private transaction volume will remain relatively flat y-o-y in FY21F.
  • Year-to-date, PropNex has been appointed as the project marketing agency for 18 projects.

Strong momentum in private resale segment to continue in FY21F

  • Meanwhile, PropNex reported a 4.7% y-o-y increase in commission from agency services as private and HDB resale transactions picked up in 2H20.
    • The private resale market saw a 19.9% increase in transaction volume in 2020 while transaction value rose 24.3%.
    • The HDB resale market also recorded a 4.3%/16.6% rise in overall transaction volume/value in 2020.
  • Furthermore, PropNex’s market share had expanded in these two segments. PropNex expects the strong momentum in the private resale segment to continue in FY21F. This will continue to underpin the group’s robust earnings outlook, in our view.
  • To tap this strength, PropNex agent base had grown to 9,119 as at Feb 2021. In addition, its strategy of attracting potential buyers through consumer events and providing value-add and consumer education tool such as Monopoly PropNex Edition, should enabled it to continue to gain market share traction, in our view.

Reiterate ADD rating

  • We raise our PropNex's FY21-22F earnings per share forecast by 6.7-14.5% as we increase our private resale market transaction volume assumption. Our target price rises to S$0.888, based on the average of 10x 2021F P/E and DCF valuation.
  • See PropNex Share Price; PropNex Target Price; PropNex Analyst Reports; PropNex Dividend History; PropNex Announcements; PropNex Latest News.
  • Given its projected higher earnings performance and strong balance sheet, we believe PropNex would maintain a high dividend< payout ratio for FY21F (FY20: 71%).
  • Key re-rating catalysts: 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 2021-02-25
SGX Stock Analyst Report ADD MAINTAIN ADD 0.888 UP 0.825