PropNex - CGS-CIMB Research 2021-08-11: Solid 2Q Results

PROPNEX LIMITED (SGX:OYY)

PropNex - Solid 2Q Results

PropNex's 1H21 earnings per share of S$0.0847 is above expectations, at 60.4% of our FY21F forecast.
Across-the-board improvements in all segments drove stronger project marketing and agency fees.
Reiterate HOLD for PropNex, with a higher target price of S$2.07.

PropNex (SGX:OYY) reported a 147.2% surge in 2Q revenue to S$260.5m, while gross profit rose 125.8% to S$27.8m, thanks to higher agency and project marketing revenue. 2Q PATMI of S$16.5m is 127.4% higher than a year ago, translating into an EPS of S$0.0446.
1H21 PATMI and earnings per share of S$31.3m/S$0.0847 is 111.2% higher y-o-y and made up 60.4% of our FY21F forecast.
PropNex’s gross cash balances grew to S$120.7m (S$0.326 per share) as at end-1H21. PropNex declared an interim dividend of S$0.055, translating into an annualised yield of 5.6%.

Commissions from project marketing services rose 158% y-o-y to S$126.8m for 2Q21 due to a higher number of transactions completed during the quarter. Total new home transaction volume surged 67% y-o-y to 6,459 units in 1H21.
Looking ahead, PropNex expects the real estate market to remain resilient for the rest of the year and believes new home sales volume could reach up to 12k units in 2021F.
As at end-1H21, PropNex had been appointed as the project marketing agency for 110 ongoing projects that are in various stages of sales, with another 15 new launches slated to be rolled out in 2H21F. With the majority of these projects located in the city fringe and suburban areas, we believe these projects are likely to be well received when marketed.

Commission from agency services also jumped 142.5% y-o-y to S$133.6m in 2Q, led by a strong showing in the private and HDB resale segments, as well as the rental market. Private resale volume transactions more than tripled to 9,852 units in 1H21, while HDB resale transactions rose 57% y-o-y to 14,644 units.
PropNex expects the strong momentum in the private resale segment to continue through FY21F. This will continue to underpin the group’s earnings outlook, in our view. To tap this strength, PropNex’s agent base had grown to 9,540 as of 1 Aug 2021.
In addition, PropNex has established an en-bloc department to tap the growing collective sales market, given the dwindling new supply situation.
To date, it has secured rights to market one commercial and six residential condominiums’ collective sales in 2H21F and early-2022F. As this segment gathers more activity momentum, we believe it could provide another source of income for the group.

We tweak our FY21-23F earnings per share estimates for PropNex up by 0.01-3.35% post-results. Accordingly, our target price is lifted slightly to S$2.07, based on an unchanged blend of net cash-adjusted P/E multiple and DCF valuation.
Our HOLD rating for PropNex is retained on limited near-term share price upside potential.
See
We remain positive on PropNex’s asset-light business model and believe its attractive projected FY21F dividend yield of 5.1% (assuming an unchanged payout of 70%) would be supportive of its share price in the medium term.
Upside risk: stronger-than-projected residential market performance.
Downside risk: property-cooling measures that could slow market transactions.

LOCK Mun Yee CGS-CIMB Research | https://www.cgs-cimb.com 2021-08-11

SGX Stock Analyst Report HOLD MAINTAIN HOLD 2.07 UP 2.050