• PropNex (SGX:OYY)'s revenue rose 9.5% y-o-y and net profit fell 6.1%. Project marketing revenue, which accounted for major share of 38.7% of revenue, fell 4.9% y-o-y due to a lull of new launches. This was offset by private resale (+21.8%), landed resale (+23.4%) and rental (+33.6%).
• On a q-o-q basis, PropNex's 1Q22 revenue was -0.2% below 4Q21, which was impressive considering 4Q21 industry-wide volume was down over 3Q21, with HDB resale -5.8%, private resale -11.5% and private new units -15.0%. This implies PropNex gained market share and sales value per unit had risen markedly.
• Property transactions recorded are booked as sales revenue in the following one to two quarters when the transactions are completed.

2Q22 Revenue Is Likely to Taper

• 2Q22 revenue is likely to taper, given that home sales volume fell further in 1Q22 (HDB resale -12.7% q-o-q, private resale - 28.9%, and private new units -39.5%), also due to lack of new launches and low unsold inventory, cooling measures introduced in mid-Dec and rising mortgage rates. As at March 2022, the number of unsold units hit a record low of 14,087 units.
• We expect volume to pick up from 3Q22, given about 6,046 of new private units will be launched progressively from 2Q. HDB resale volume will be underpinned by record 31,325 units that reach the 5-year minimum occupancy period and are available for sale.
• For FY22, PropNex estimated that volume will fall 5-10% for HDB resale, 20-25% for private resale units and 20-30% for private new units.

Advantage of Scale

• PropNex's agency force, which exceeds 11,000, is the largest and continues to grow. The scale gives it an edge in
  1. economies of scale in sharing of data and resources;
  2. garnering marketing roles for new launches and en-bloc sales; and
  3. attract even more agents to sign on.
• The near-term risks are
  1. mortgage rates have crept up from median 1.15% in Dec 21 to 2.5% currently;
  2. higher prices of new launches hurting affordability; and
  3. inflationary-push recession risks.
• We maintain our HOLD call and target price for PropNex.

Source: SAC Capital Research - 13 May 2022