PropNex - UOB Kay Hian 2021-10-06: Property Market Remains Robust; Upgrade To BUY


PropNex - Property Market Remains Robust; Upgrade To BUY

  • With a 14% retracement in PropNex's share price since its 1H21 results, we believe the company’s fundamentals, valuation multiples and net cash position now warrant a more bullish stance. 
  • The Singapore property market remains robust and we believe PropNex’s 3Q21 business update will be a strong one. In the next 6-12 months, earnings surprises could come from successful en bloc projects. Upgrade PropNex to BUY.

Upgrade PropNex to BUY.

  • We upgrade PropNex (SGX:OYY) to BUY with an updated target price of S$1.97 (-6% from S$2.09 previously). Post its strong 1H21 results which were reported on 11 Aug 21, PropNex's share price has declined 14%. We attribute this to profit-taking after a strong share price performance year-to-date, with the stock having risen 116.7% and substantially outperforming the STI’s increase of 10.8% over the same period. Fundamentally, we believe that the company continues to fire on all cylinders given that the Singapore property market has maintained its robustness in 3Q21, but not enough to warrant the government implementing cooling measures, in our view.
  • While 2021 could be the peak in PropNex’s earnings, we believe there is upside in its share price as PropNex is trading at an undemanding 2022F P/E of 11.8x, EV/EBITDA of 6.9x and with a prospective yield of 6.5%. In the short term, continued bullish newsflow on transaction volumes, en blocs or property pricing could be share price catalysts.

We highlight that there is still a lot to like about Propnex.

  • In 1H21, PropNex's ROE nearly indicate that MAS does not believe that the property market is overheated, although it did caution that it remains ‘vigilant’ about prices. We also highlight that the 0.8% q-o-q increase in 3Q21 Singapore home prices is too low for the government to implement any cooling measures.

Continued decline in inventories of unsold private homes presents Propnex with opportunities.

  • As highlighted by PropNex during its 1H21 results, unsold private ‘triple whammy’ of attractive government grants, an increase in the expiry of minimum occupation period, and material delays in Build-To-Order flats which have had a positive knock-on effect on demand for HDB flats.

Upgrading PropNex's earnings estimates.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-10-06
SGX Stock Analyst Report BUY UPGRADE HOLD 1.97 DOWN 2.090