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PropNex - UOB Kay Hian 2021-02-26: 2020 Results Beat Our Estimates With Strong Momentum In 2021

PROPNEX LIMITED (SGX:OYY) | SGinvestors.io PROPNEX LIMITED (SGX:OYY)

PropNex - 2020 Results Beat Our Estimates With Strong Momentum In 2021

  • PropNex reported strong results with PATMI of S$29.1m (+46% y-o-y) that beat our estimates. The project marketing and HDB resale segments were the highlights for the year.
  • We raise our 2021 and 2022 earnings estimates of PropNex by 19% and 27% respectively and upgrade our target price to S$0.97 based on a 10.2x ex-cash P/E multiple. 
  • Maintain BUY. 



PROPNEX'S FY20 RESULTS


Continued strong outlook.

  • PropNex (SGX:OYY) reported a 46% y-o-y increase in PATMI to S$29.1m on the back of a 23% y-o-y increase in revenue to S$515.6m. Project marketing revenue in particular grew strongly, up 62% y-o-y to S$219m while HDB resale revenue was robust, up 15% y-o-y to S$87m.
  • Gross profit margins saw a mild expansion, helped by the project marketing segment in particular where its margins rose by 10ppt to 43% vs 33% in 2019 as developers paid out higher commission rates.

Generous dividend payout.

  • PropNex declared a S$0.04/share dividend which, together with the S$0.015/share dividend for 1H20 brought the full-year payout to S$0.055/share. At yesterday’s closing share price of S$0.82, this implies a 6.8% yield.

Outlook remains bright.

  • While 2020 will likely see the pace of new launches dip, we believe that PropNex’s strong earnings momentum will continue into 1Q and 2Q21.
  • On the results call, PropNex disclosed that it had sold 1,503 units in the Dec 20- Feb 21 period representing $2.265b in sales value. As a result, its new launches segment will do well given that there is a time lag between closing the deal to invoicing the property developer. The management highlighted that out of 27 developments expected to be launched in 2021, PropNex has been appointed in 18 of them, with others yet to be announced.


STOCK IMPACT


Resale private properties to perform better in 2021.

  • While the private resale segment saw a commendable performance with revenue up 6% y-o-y, PropNex believes that it will perform much better in 2021. In particular, it has witnessed increased foot traffic through its resale properties as:
    1. the pricing gap between resale properties and new homes has widened; and
    2. there are at least 30,000 HDB owners exiting their Minimum Occupation Period (MOP) this year who may look to upgrade, especially if their HDB properties are in hot areas and could potentially generate meaningful profits.

En bloc fever, but not as high as before.

  • According to PropNex management, a number of Singapore’s property developers will soon run short of land and thus they are likely to come into the market to acquire land via the en bloc process.
  • As a measure of its confidence, PropNex recently took on a senior hire in Ms Tracy Goh to head up its en bloc team. It expects 1-2 properties per quarter to be tendered for en bloc in 2021, with properties in the OCR likely see the most demand. With 7,000 unsold units in the Core Central Region (CCR), and only demand for 1,000 units in 2020, there is a very wide supply and demand mismatch in the CCR.

A small cloud – lower sales for private new homes.

  • In the management’s view, private new homes will not repeat the strength seen last year when over 9,900 units were sold; instead it expects sales to be as much as 15% lower at around 8,500-9,000 units.
  • Looking at the launch calendar for 2021, only one mega launch was slated for this year, ie Normanton Park with over 1,800 units for sale. Nevertheless, PropNex believes that while government measures have dampened the market, there is inherent baseload of 7,000 homes sold per year.

HDB resale market likely to remain strong.

  • With the government grants announced in 2019 as well as the COVID-19-related delays to the Build-To-Order apartments, demand for HDB resale apartments will likely remain strong in our view. This plays to PropNex’s strength given that it has a 57% market share in this segment as at end-20.
  • The company pointed out that with ~30,000 HDB owners finishing their MOP, a material number of them will likely look to upgrade to private condominiums, especially if such owners are sitting on substantial profits. However, with only 7,000 units available in the OCR and demand at 4,000, demand will be robust, as will pricing.


EARNINGS REVISION/RISK


Upgrading estimates.

  • We raise our PropNex's 2021 and 2022 EPS forecasts by 19% and 26% respectively to take into account better-than-expected new sales volumes seen in 4Q20 and 1Q21 year-to-date which should translate to strong profits in 1H21 and even into 2H21.
  • Our new forecasts also take into account the higher-than-expected market share that PropNex has been able to command which will invariably bring scale advantages to its overall business and engender cost savings, in our view.

Regulatory risk.

  • The key risk to our call remains government intervention to cool down property prices. With 4Q20 having seen price increases in excess of 2% y-o-y, prices need to remain below 2% for the next two to three quarters for the regulatory risk to dissipate.

VALUATION/RECOMMENDATION



SHARE PRICE CATALYST

  • Positive news flow on HDB resale market and private resale volumes.





Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-02-26
SGX Stock Analyst Report BUY MAINTAIN BUY 0.97 UP 0.890



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