• PropNex (SGX:OYY)'s 1HFY21 revenue made up 76.2%, and net profit 82.4% of our FY21E forecasts, with strength above expectations, riding the strong buying momentum that lasted from FY20. Drivers of growth were mainly higher transaction volume, attractive mortgage rates, Singapore’s safe haven status and a bigger upgrader market due to attractive HDB resale prices.

PropNex's 1HFY21 Results

• PropNex reported revenue doubling from S$240.4m to S$481.1m in 1HFY21, with all segments seeing growth. Private resale took lead with 2.5x y-o-y jump to S$108.7m from S$44.2m, and project marketing clocking highest value jump to S$225.1m from S$109.4m (2.1x). Project marketing segment itself made up 46.8% of 1H revenue. Landed and HDB resale grew 2.5x and 1.6x respectively. PATMI increased 2.1x to S$31.3m.
• In 2H21, PropNex will be involved in 15 new property launches, with several more upcoming in 2022.

Transaction Volume, Property Price Run-up to Continue in the Near-term

• We expect home prices to remain resilient with higher developer costs that will translate to higher property prices, more HDB upgraders and portion that opt out of BTOs to private residential property due to the long waiting times. Property investments by high-net-worth individuals due to Singapore’s “safe-haven” status will also contribute to the increase.
  • Private home prices rose by 0.8% q-o-q in Q2, slower than the 3.3% increase in Q1 2021 (Q4 2020: +2.1%).
  • HDB resale prices rose 3% q-o-q in Q2, higher than the 2.8% increase in Q1 2021 (Q4 2020: +3.1%). Number of transactions, however, declined 6.8%. Transaction prices remain raised as sellers are adamant on their asking prices, seeing the number of million-dollar units sold thus far this year.

Low Home Inventory

• The low inventory of unsold private residential units in the market is, however, a double-edged sword. In the near-term, the low inventory (21,055 units, including ECs, with a potential 6,700 more from GLS that have not been granted planning approval) will continue to prop prices up.
• In the longer term, the dwindling supply of new launches and property under development will affect PropNex’s project marketing segment (largest revenue contributor), and ultimately transaction volumes in resale markets as well.

High Cash Balance

• PropNex is cash-rich with S$120.7m in cash as at 30 June (31 Mar: S$118.9 million). The Group remains debt free. We expect that this will likely continue in the near term. Net cash per PropNex share is S$0.326.

High Dividend Payout

• PropNex's total 1H21 dividend payout was S$0.0550 per share or 64.9% of 1H PATMI. Despite the relatively lower retention ratio compared to peers, it is sitting on higher cash balance. We raise our FY21E dividend forecast for PropNex from S$0.065 to S$0.095 per share.

Adjusted Our FY21E Estimates; Introduce FY22E Forecasts

• With its strong set of 1H 19.5% y-o-y decline on PATMI to S$43.1m.
• In the near term, we expect sales volume and elevated property prices to continue to see strength in 2H. However, the strong growth and revenue sprint up this year may not be sustainable for long.
• Further, the dwindling supply in the pipeline and fewer new launches expected points to lower transaction volume next year.

Maintain HOLD Rating for Propex, at a Higher Fair Value of S$2.00 (from S$1.27)

• Our target price is based on a P/E multiple of 13.8x, which is based on FY21E P/E +1 standard deviation above its mean, based on past 10 quarters of noted PropNex's higher valuation figures compared to its listed peer APAC Realty (SGX:CLN).

• Our target price for PropNex implies a 4.2% upside to the last traded PropNex's share price.

Source: SAC Capital Research - 27 Aug 2021