Strong earnings visibility for project marketing segment going forward 2019.

• In 9M18, PropNex was involved in 19 launches with 8,779 units. The company also has a strong pipeline of mandates going forward from 2H18/19 with close to 9,843 units. Seven new projects (with total of 3,173 units) will be lined up for the rest of 2018, and another 10 projects (with total of 6,670 units) are scheduled for 2019.
• Management estimates another 30 more projects (ie owning to the large number of en-bloc sites, at least 67 since 2016-18) have not appointed agencies yet. As one of the largest agencies by sales force, PropNex is in a strong position to gain the majority of the appointments.
• In “dry volume” periods, PropNex is further protected by “sweetened” commission structures. According to our channel checks, some of the base commissions (on launch weekends) have increased by c.50% on average, compared to that for projects a year ago.
• Given that projects are competing for the same pool of buyers, developers are increasingly locked into a tit-for-tat in commissions (ie match up with competition) to incentivise agents to bring clients in. We believe the competition will be especially intense for sites which are larger, or located closely to competing projects. Developers with larger inventories to move will also be pressured to raise commissions.

PropNex widens its lead as the largest agency by number of salespersons.

• As at 1 Oct 18, PropNex’s sales force had grown by 13.1% ytd to 7,565 agents (vs 4.0% ytd by ERA). Compared to ERA (6,117 agents), PropNex is now 24% larger by agent numbers. The absolute growth (+881 agents) is larger than the combined growth of the next three agencies.
• Of the 881 agents, about c.550 agents are experienced. Despite the positive net inflow, management alluded that a few of their team leaders have crossed over to join a competitor, due to unhappiness after not being allocated opportunities for project marketing (ie determined by performance KPIs).
• According to our channel checks, ERA has set aside S$2m to sponsor the licence renewals for all their associates (and any new joiners). We expect the sponsorship to boost their agent retention crossing over into 2019.
• Agent retention can be measured in terms of dropout of agents (ie crossing into 1 January). Compared to PropNex, ERA saw higher dropout rates of -8.2% (vs -5.8% as at 1 Jan 17) and - 5.9% (-5.2% as at 1 Jan 18), according to Frost & Sullivan. According to management, PropNex is not following suit with a similar sponsorship on the licence renewals.
• We see the S$283 renewal fee as a small hurdle to cross for committed agents. Therefore, non-renewal is a natural attrition for dormant agents (ie who are less likely to close sales anyway). They are also unlikely to lead to a significant cross-over of agents to take advantage of the licence renewal, due to the small quantum (licence renewal fee: S$283) involved, as well as other intangible pull- factors, like PropNex’s training system, collaborative culture, and good-will cultivated between team members.