PropNex - UOB Kay Hian 2022-05-12: 1Q22 Benefitting From Its Broad-Based Revenue Streams


PropNex - 1Q22 Benefitting From Its Broad-Based Revenue Streams

  • PropNex (SGX:OYY)'s 6% y-o-y decline in its 1Q22 PATMI to S$14m was in line with our expectations with weakness in project marketing offset by relative strength in its other business segments. The company generated free cash flow of S$17m in 1Q22, up 21% y-o-y, while its balance sheet remains underutilised.
  • We view PropNex’s investment metrics as inexpensive given its ex-cash P/E of 8.9x for 2022 and yield of 6.4%. Maintain BUY with a slightly lower target price of S$2.07.

PropNex's 1Q22 results in line with expectations.

  • PropNex reported 1Q22 results that were in line with our expectations with PATMI falling 6% y-o-y to S$13.9m, making up 25% of our full-year estimate. The company saw a 5% y-o-y decline in project marketing revenue due to a lack of new launches in 1Q22; however, this was more than offset by its other business segments which saw double-digit y-o-y revenue increases. Private resale was notably strong with revenue increasing 21% y-o-y to S$67m.

The return of foreign buying.

  • During the analyst call, PropNex highlighted that while foreigners only represented 3.2% of all property transactions in 1Q22, the month of April saw foreign participation reach 9.0%, a level that the market has not witnessed since 2015.

Underutilised balance sheet.

  • PropNex continues to have an underutilised balance sheet with no debt and S$162m in cash as at end-1Q22; of this, S$26m will be paid out at end-May 22 as its final dividend for 2021. After the dividend payment, the company will still have about S$0.37/share in cash, representing around 21% of its share price.
  • We believe that as its cash hoard builds up, the pressure from shareholders to return it via a special dividend will be difficult for the market to ignore.

Near-term en bloc news may be a share price catalyst.

  • During the analyst call, PropNex highlighted that May and Jun 22 will see the closing of two of its en bloc tenders respectively. These are the Lakeside Apartments at an indicative price of S$240m and Lakepoint Condominium at an indicative price of S$640m. PropNex appears to be quietly confident that these projects will attract strong bids as property developers are desirous of topping up their landbank. If successful, these two projects could be very lucrative for Propnex given the 50% gross margins and 0.6% minimum commission – this could translate to at least S$2.5m in profit which we have not factored into our current forecasts.
  • The cooling measures from Dec 21 did not appear to have had a negative effect on PropNex’s 1Q22 results; however, the company’s management highlighted that its solid numbers were partially the result of the timing of revenue recognition and that 2Q22 results would be more telling.
  • In any case, we note that PropNex has a broad base of revenue generation which should largely cushion the full brunt of the cooling measures. In addition, we highlight management’s comments that current buyer sentiment remains “good” which seems to be backed up by the recent strong sales performance at Piccadilly Grand, a new launch by City Developments and MCL Land.

A bumper dividend for 2021 – To be repeated in 2022?

  • Recall that PropNex paid out a dividend of S$0.125/share in 2021, implying a historic yield of 7.2% based on yesterday’s closing price. The payout ratio of 77.1% for 2021 was slightly higher than expected and we forecast PropNex to continue to pay out 70% of its profits going forward. This results in a dividend per share of S$0.11 for 2022 which implies a yield of 6.4%.

PropNex - Earnings forecast and Recommendation

  • No changes to earnings estimates.
  • We maintain our BUY rating with a slightly lower PE-based target price of S$2.07. We have lowered our target P/E multiple to 1 standard deviation above PropNex’s historical P/E average of 7.5x (previously 1.5 SD) to take into account a period of adjustment for the Singapore property market after the cooling measures were implemented in Dec 21 and Apr 22. Nevertheless, we believe that PropNex’s prospects remain strong given that uncompleted unsold units are at an all-time low and thus, prices and volumes should remain reasonably well-supported in the medium term.
  • Inexpensive metrics. Given PropNex’s net cash position of S$136m (after the payment of 2021’s final dividend), we note that PropNex’s ex-cash P/E is only 8.6x. We also note that during 1Q22, the company generated nearly S$17m in free cash flow which, on an annualised basis, represents around 10% free cash flow yield.
  • See
  • Catalysts:
    • Continued positive newsflow on private and HDB resale volumes.
    • Higher-than-expected interim dividend for 1H22, indicating the company’s willingness to ash to shareholders.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2022-05-12
SGX Stock Analyst Report BUY MAINTAIN BUY 2.07 DOWN 2.220