• PropNex's 4Q/FY20 earnings per share of of S$0.0203/S$0.0786 beat our expectations, at 33.1%/128.5% of our FY20 forecast.
• PropNex expects strong volume momentum in the private resale segment to continue in FY21F.
• Reiterate ADD with a higher target price of S$0.888.

PropNex's 4Q/FY20 Results Highlights

• PropNex (SGX:OYY) reported a 18.8% y-o-y rise in 4Q20 revenue to S$155.6m. However, PATMI decreased 8.9% y-o-y to $7.5m (earnings per share: S$0.0203) on the back of lower gross profit margin of 10% (vs. 11.4% in 4Q19) due to higher proportion of lower-margin product mix, impairment, and share of loss from associate of S$0.7m.
• For FY20, PropNex recorded a 22.8%/45.2% improvement in revenue/ PATMI to S$515.6m/S$29.1m. Its gross cash position stood at S$105.8m (or S$0.286 per share) as at end-Dec 2020.
• PropNex proposed a final dividend of S$0.04 per share, bringing FY20 dividend to S$0.055 per share, translating to a 6.8% yield.

Gained Market Share in Project Marketing in FY20

• PropNex posted a 62.1% jump in commission from project marketing services to S$218.7m for FY20 as the group continued to gain transaction volume market share to 48.8%. Its overall market transaction value also improved 3.5% y-o-y.
• Looking ahead, PropNex expects a slower growth trajectory from this business segment in FY21F. Our current projection is that new private transaction volume will remain relatively flat y-o-y in FY21F.
• Year-to-date, PropNex has been appointed as the project marketing agency for 18 projects.

Strong Momentum in Private Resale Segment to Continue in FY21F

• Meanwhile, PropNex reported a 4.7% y-o-y increase in commission from agency services as private and HDB resale transactions picked up in 2H20.
  • The private resale market saw a 19.9% increase in transaction volume in 2020 while transaction value rose 24.3%.
  • The HDB resale market also recorded a 4.3%/16.6% rise in overall transaction volume/value in 2020.
• Furthermore, PropNex’s market share had strength, PropNex agent base had grown to 9,119 Monopoly PropNex Edition, should enabled it to continue to gain market share traction, in our view.

Reiterate ADD Rating

• We raise our PropNex's FY21-22F earnings per share forecast by 6.7-14.5% as we increase our private resale market transaction volume assumption. Our target price rises to S$0.888, based on the average of 10x 2021F P/E and DCF valuation.
• Given its projected higher earnings performance and strong balance sheet, we believe PropNex would maintain a high dividend risks: protracted recovery of the property market due to weak macro outlook.

Source: CGS-CIMB Research - 25 Feb 2021