• We expect strong 2Q21F/1H21F results for PropNex, underpinned by a robust residential market.
• We up our FY21-23F earnings per share forecast for PropNex by 15.7-33.2% and raise our dividend projections.
• Downgrade PropNex to HOLD on valuation grounds, with a higher target price of S$2.05.

We Expect Strong 2Q21F/1H21F Net Earnings for PROP

• We expect PropNex (SGX:OYY) to post another strong quarter in its upcoming 2Q21F/1H21F results, given the robust residential market transactions and the low base in 1H20. We estimate a 2Q21F PATMI of S$10m-13m (1H: ~S$25m-28m, representing 50-55% of our revised FY21F forecast).
• Based on our analysis and accounting for the lagged billing effect, the 44% higher y-o-y (+29% h-o-h) value of 2H20 private new and resale residential deals, as well as HDB resale transactions, should translate into strong growth in 1H21F topline and ottomline.
• Additionally, if we assume an unchanged interim dividend payout ratio of ~40%, PropNex's interim dividend could range from ~S$0.027-S$0.03, or an annualised yield of 2.7-3%, in our view.

Robust 1H21F Volume Transactions to Drive 2H21F Earnings Growth

• Looking into 2H21F, while we think PropNex’s growth trajectory could likely moderate on a y-o-y basis, taking force continues to expand to 9,541 as at 6 Aug 2021 (vs. 9,373 in May 2021).

Raising FY21-23F Earnings Estimate

• We raise our FY21-23F earnings per enbloc sales department, put in place a lux sales team and acquisition of a 70% interest in OVVY, an app-based online marketplace for household services, should complement its suite of services, in our view.

Downgrade to PropNex HOLD, Attractive Dividend Yield Provides Support

• We raise a blend of net cash-adjusted P/E multiple and DCF. However, as PropNex's share price has surged 81% since its 1Q21 results, we believe much of the earnings optimism has been factored into the current share price. Accordingly we lower our rating for PropNex to HOLD on valuation.

• We remain positive on PropNex’s asset-light business model and believe its attractive projected dividend yield of 4.8% (assuming an unchanged payout of 70%) would be supportive of its share price in the medium term.
• Upside risk: stronger-than-projected residential market performance.
• Downside risk: property cooling measures that could slow market transactions.

Source: CGS-CIMB Research - 10 Aug 2021