PROPNEX LIMITED (SGX:OYY)
PropNex - 1H21 Blockbuster Results, But May Be Tough To Repeat; Downgrade To HOLD
- PropNex reported a very strong 1H21 net profit of S$34.4m (+115% y-o-y), beating our and consensus expectations. All business segments contributed to the strength, and ROE accordingly doubled to over 16%. A bullish S$0.055 dividend was declared.
- However, with worries that 2021 may be the peak earnings year for PropNex, we downgrade our recommendation to HOLD. Fair value: S$2.09.
Propnex reported strong 1H21 results which were better than expected...
- PropNex (SGX:OYY) reported a strong 1H21 with revenue doubling to S$481.1m, resulting in net profit increasing by 115% y-o-y to S$34.4m. See PropNex's announcements. All business segments did well with the strongest revenue growth coming from landed (+150% y-o-y) and private resale (+146% y-o-y) although the largest segment is still project marketing, or new launches, representing 47% of PropNex’s revenue of S$481m.
...however 2021 could be the peak in the company’s earnings.
- Given the strong transaction volumes seen across all its business segments in 1H21, as well as the new and potentially lucrative en bloc team that is now in place, we worry that 2021 may be the peak earnings year for PropNex. In the short term, continued bullish newsflow on transaction volumes, en blocs or property pricing may prop up the share price. However, looking ahead into 4Q21 and 2022, we believe that such strength will be difficult to sustain.
- PropNex declared an interim dividend of S$0.055 which formed 58% of our prior full-year estimate of S$0.095. We subsequently upgraded our 2021 dividend estimate to S$0.11.
STOCK IMPACT
- Propnex’s management remains bullish buyers still a factor, but in the upper end of the market. PropNex stated that penthouses and Good Class Bungalows have been in “hot demand from new citizens” with 40% of them already in the country while the rest remain overseas but are able to attend showroom visits virtually. China remains the largest source of buyers while other buyers come from Vietnam, Korea, Indonesia, Hong Kong and the US.
EARNINGS REVISION
- Upgrading earnings. We have upgraded 2021-23 earnings by 6-17% (see table at RHS) with the largest changes coming in 2021 due to the stronger-than-expected transaction volumes across the board. We have also conservatively factored in a 50% success rate for its S$4.4b worth of en bloc projects which translate to a revenue uplift of S$1.4m and $4.1m for 2021 and 2022 respectively.
VALUATION & RECOMMENDATION
- Given the strong share elected to downgrade Propnex to HOLD. Our target P/E multiple of 12.5x is +2 standard deviation above PropNex’s historical average of 6.6x. We have chosen not to lower our target P/E multiple given various issues that could still lend support to its share price, for example:
- stronger-than-expected transaction volumes for private and HDB resale; and
- strong conversion of its S$4.4b worth of en bloc projects currently in hand.
- See
- We highlight that there is still a lot to like about Propnex. In 1H21, PropNex's ROE nearly doubled to 16.3% vs 8.6% in 1H20 while remaining in a net cash position to the tune of S$120.7m (or S$0.33 per share) as at end-1H21. In addition, PropNex generated S$19.2m in free cash flow in 1H21 which was a 59% y-o-y increase from the S$12.1m generated in the year-ago period.
SHARE PRICE CATALYST
- Continued positive newsflow on private and HDB resale volumes.
- Moderation in quarterly price increases of the PPPI.
Adrian LOH
UOB Kay Hian Research
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https://research.uobkayhian.com/
2021-08-12
SGX Stock
Analyst Report
2.09
UP
1.340
