PropNex - CGS-CIMB Research 2021-05-11: Still Has Legs To Run On


PropNex - Still Has Legs To Run On

  • PropNex's 1Q21 earnings per share of 4.01 cents beat our expectation at 47.7% of our FY21F forecast.
  • All segments enjoyed higher revenue on the back of a robust property market.
  • Reiterate ADD rating on PropNex with a higher target price of S$1.19.

PropNex's 1Q21 results highlights

  • PropNex (SGX:OYY) reported a 63.3% y-o-y jump in 1Q21 revenue to S$220.6m while PATMI almost doubled y-o-y to S$14.8m (EPS: 4.01 cents) on the back of better performance across all business segments, higher other income and lower expenses. GP margin of 10.6% was relatively stable (vs. 11% in 1Q20).
  • PropNex's gross cash position stood at S$118.9m (or 32.1 cents/share) as at end-1Q21.

Project marketing segment benefited from higher launch take-up

  • Commission from project marketing services rose 63% y-o-y to S$98.3m for 1Q21 due to the buoyant market as well as a y-o-y improvement in market share, in our view. Total new home transaction volume surged 62.5% y-o-y to 3,493 units in 1Q. In addition, we believe PropNex was able to maintain its market share, which stood at 48.8% in 4Q20 (vs. low 40% in 1Q20).
  • Looking ahead, PropNex expects the real estate market to remain resilient for the rest of the year.
  • As at Apr 21, PropNex had been appointed as the project marketing agency for 26 projects. With the bulk ~60% of these projects located in the Central Region and city fringe locations, we believe robust take-up of these higher priced projects will likely translate to a strong transaction value for this segment this year.
  • Moreover, PropNex does not expect any material impact on its business from the recent stepped up COVID-19 safety measures effective from 8 May, thanks to its ability to operate effectively via virtual and digital platforms.

Agency services segment boosted by surge in market volumes

  • Meanwhile, commission from agency services also jumped 64.2% y-o-y to S$121.7m as private and HDB resale transactions and leasing activities picked up in 1Q21. The private resale market saw a 117% y-o-y surge in transaction volume to 4,519 units in 1Q21 while HDB resale transactions posted a 29% y-o-y rise to 7,581 units.
  • 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’s agent base had grown to 9,373 as at May 2021. In addition, its strategy of attracting potential buyers through consumer events and recent acquisition of a 70% stake in Ovvy, a technology platform that connects service providers to consumers, should enable it to continue to gain market share traction, in our view.

Reiterate ADD rating on PropNex

  • We raise our PropNex's FY21-23F earnings per share forecast by 14.9-21.9% as we increase our private resale and primary market transaction value assumptions, due to a higher mix of centrally-located products.
  • Our target price for PropNex rises to S$1.19, based on the average of 10x 2021F P/E and DCF valuation.
  • Given its projected higher earnings performance and strong balance sheet, we believe PropNex would maintain a high dividend payout ratio for FY21F (FY20: 71%).
  • See
  • 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 | 2021-05-11
SGX Stock Analyst Report ADD MAINTAIN ADD 1.19 UP 0.888