Simons Trading Research

Author: simonsg   |   Latest post: Tue, 13 Dec 2022, 10:52 AM


PropNex - 2021 a Doubling in Profits Plus a Bumper Dividend

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  • PropNex reported a strong set of results with net profit and free cash flow nearly doubling y-o-y to S$60m and S$83m respectively. As a result, the company declared a final dividend of S$0.075, bringing total dividend for 2021 to S$0.125.
  • Despite the recent cooling measures in Dec 21, PropNex’s outlook appears reasonably solid given the growth seen in its number of agents, tight supply of property and its robust transaction volumes year-to-date. Maintain BUY.

Propnex Reported a Stellar Set of Results for 2021

  • PropNex (SGX:OYY) reported a stellar set of results with revenue and net profit of S$958m (+87% y-o-y) and S$60m (+96% y-o-y), which were slightly ahead of our estimates. Free cash flow nearly doubled in 2021 to S$83m (2020: $42m). With no debt and a cash pile of S$146m as at end-21, equivalent to $0.39 per share, the company’s balance sheet remains under-geared.
  • A bumper dividend as expected. PropNex declared a final dividend of S$0.07 per share, which brought total 2021 dividend to S$0.125 per share and implies a yield of 7.3% based on yesterday’s closing price. The payout ratio of 77.1% was slightly higher than expected and we expect PropNex to continue to pay out 70% of its profits going forward.

Getting Bigger and Better

  • As of mid-Feb 22, PropNex had 11,125 agents and is well on track to reaching its target of 12,000 by end-22. With a growing base of agents, we expect PropNex to grow its base of revenues as well as market share.
  • In 2021, staff costs increased by 19.4% to S$16.8m, with salary expense of S$12.4m increasing 14% y-o-y while performance bonuses of S$3.2m rose 52% y-o-y.
  • PropNex remains positive regarding its outlook. During the results briefing, PropNex's management stated that it is well positioned despite the cooling measures given that it has strong representation in all segments of the property market in Singapore. In particular:
    1. HDB transaction volumes will still remain elevated due to material delays in construction of Build-to-order (BTO) flats.
    2. The estimated number of HDB flats reaching the five-year Minimum Occupation Period (after which owners are allowed to sell) will peak in 2022 at over 31,000 units. PropNex estimates that some of these HDB owners could see profits of up to S$250,000 and this is a focus group that it will target to upgrade to private condos. This group will still look to upgrade given that they are not subject to the higher stamp duties from the Dec 21 cooling measures.
    3. There are currently 27 developments due to be launched in 2022, with much of these back-end loaded in 2H22. Thus, PropNex believes it can continue to at least maintain a similar level of performance this year in its project marketing business. The company disclosed that its market share in the new launches year-to-date has been well above 50%.

Impact of the Dec 21 Cooling Measures on the Company’s Business

  • PropNex highlighted that the cooling performance was strong and better on a y-o-y basis – thus, despite the cooling measures, it has not experienced any negative effect on its transaction volumes.

A Move Into the Good Class Bungalow (GCB) Segment

  • PropNex revealed that it had set up a specific unit market within the next 1-2 years.

Propnex - Earnings Forecast & Recommendation

  • We have upgraded our 2022 and 2023 net profit forecasts for PropNex by 7% and 17% to S$0.39 per share, we note that PropNex’s ex-cash P/E is only 8.6x.
  • Catalysts:
    • Continued positive newsflow on private and HDB resale volumes.
    • Moderation in quarterly price increases of the Private Property Price Index (PPPI).

Source: UOB Kay Hian Research - 25 Feb 2022

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PropNex 1.88 +0.01 (0.53%) 64,500 

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