PropNex - Phillip Securities 2021-08-16: Bumper Quarter


PropNex - Bumper Quarter

  • PropNex (SGX:OYY)'s 2Q21 PATMI surged 127% y-o-y to S$16.5mn. A major beat. 1H21 PATMI at 75% of our forecast. All four revenue streams grew.
  • Private resales stood out with a more than 3-fold jump in revenue. Resale prices more attractive than new-unit prices. Interim dividend up almost 3-fold to S$0.055, a 65% payout for 1H21.
  • 2H21 to remain buoyant for PropNex, underpinned by a virtuous cycle underway. HDB upgraders are pushing up new home sales, driving demand for resale units due to their price differential. Rising affordability forms the foundation of this upcycle. After a decade, the property price index is only up around 13%. Rising income and TDSR should contain speculation.
  • We raise PropNex's FY21e PATMI forecast by 53% to S$63.5mn as we lift revenue by 77%. DCF target price (WACC 9.8%) for PropNex rises from S$1.36 to S$2.08. That said, recent rally has priced in most of the positives. Downgrade PropNex to ACCUMULATE from BUY.

PropNex's 2Q21 Results - The Positives

Resales led growth.

  • Private resales grew the fastest. 2Q21 revenue spiked 228% y-o-y to S$70mn, supported by a four-fold rise in industry resales to 5,333 units. Last year’s circuit breaker had severely affected volumes. Private residential resales in Singapore are on track to touch their highest in a decade. Attractive prices compared to new-home prices are the main reason.

Interim dividend raised almost 3x.

  • PropNex's interim dividend has been bumped up from S$0.015 to S$0.055, representing a 65% payout. The S$20.3mn payout is well supported by S$33mn of operating cash flows in 1H21.
  • PropNex's net cash as at June 2021 was S$120.6mn, up from S$99.7mn in June 2020.

Attractive operating leverage.

  • PropNex’s operating leverage was in full display in 2Q21. Revenue jumped 147% while operating costs only rose 38% y-o-y. The bulk of the increase was for variable referral fees and marketing expenses.

PropNex's 2Q21 Results - The Negative


PropNex - Outlook

  • We expect the transaction momentum to continue. A virtuous cycle is underway from HDB upgraders, which is supporting demand for resale units due to their price differential. The next source of demand could be a return of foreign buyers when borders re-open.

Cooling measures.

  • Cooling measures are unlikely in the near term, in our view.
    • Firstly, TDSR has contained a large part of speculation in the residential segment.
    • Secondly, recent commentaries by the authorities suggest that the market is not overheated and intervention is not required.
    • Thirdly, the rule of thumb is a double-digit rise in the property price index over 12 months before intervention is considered.
  • Over the past four quarters, the index was up only 7.1%.

Private new homes.

  • Unsold inventories for developers are dwindling fast. They are now 19.4k, down 30% or 8.6k from a year ago. Based on current run rates of 12.6k units sold per year, the industry’s inventory-to-sales ratio is at a 4-year low of 1.5 years. To help developers replenish their land banks, there could be more aggressive government land sales or en-bloc projects.
  • PropNex’s revenue in FY22e could be affected by a lack of new launches. This could be mitigated by its entry into en-bloc brokerage. A pipeline of around S$6bn has been identified.

Private resales.

  • Private resale volumes are notoriously volatile. Their 10-year average is around 10k units per year, swinging from a highest of 14k in 2017 to a lowest of around 5k in 2014. 1H21 units transacted were 9.8k. Annualised, resales are on track to break a record in a decade.
  • High price premiums of new homes over resale homes and lifestyle changes from working and spending more time at home are some of the demand catalysts.

HDB resales.

  • Attractive government grants and a jump in the expiry of minimum occupation periods continue to anchor the vibrant HDB resale market. Other factors include downsizing by households most affected by the pandemic and a preference for resale units due to delays in BTO construction.


  • Tenants are shifting to larger units and foreign demand has been resilient as outflow has not been particularly large. Another group of tenants is buyers of BTO flats or new launches who require temporary housing as construction has been delayed.

Foreign demand.

  • Ultra-high-end properties such as penthouses and good class bungalows have been selling well, to buyers not only from China but also Vietnam, Korea and the US. Despite travel restrictions, sales can be closed with virtual viewing. Once travel restrictions are lifted, we believe foreign buyers can support demand in the CCR/OCR region at the S$2- 5mn price points. Unsold inventories of private homes are the highest in the CCR/OCR region.

Downgrade PropNex from BUY to ACCUMULATE with higher target price of S$2.08, from S$1.36

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-16
SGX Stock Analyst Report ACCUMULATE DOWNGRADE BUY 2.08 UP 1.360