• We initiate coverage on PropNex (SGX:OYY) with a BUY rating and 12-month target price pegged at 14x FY23E P/E, representing about +1 standard deviation above its historical mean.
• In our view, the premium valuation of PropNex to its closest SGX-listed peer, APAC Realty (SGX:CLN) at 10x P/E, is justifiable given its increasing market share and leadership position in Singapore, coupled with a cash generative business model.
• Backed by its strong balance sheet with net cash representing ~22% of current market cap, we believe PropNex can easily sustain its high dividend payout of more than 70%. This would also translate into an attractive prospective yield of around 7.0%.

SG Residential Property Market Shows Resilience

• Despite macro uncertainties and cooling measures in Dec 2021, the local residential market has been more resilient than expected with our assumption of 7% private home price growth this year. While rising interest rates could weigh on sentiment, healthy buying interest from upgraders and first-time buyers will continue to underpin the property market.
• Developers sold 834 new homes in Jul (+70.9% m-o-m), boosted by the successful launch of AMO Residence (with take-up of 98.4% at a median price of S$2,110 psf). PropNex won the biggest market share as its agents accounted for over half of the sales that will be recognised in 2H22.

Strong Economic Moat With Growing Salesforce

• PropNex continues to see above-industry growth in the number of salespersons to 11,744 as at 1 Aug 2022 (+8.8% year-to-date). To cement its leadership position, PropNex aims to have 12,000 strong team by end-2022. This means that PropNex will typically be appointed as exclusive or one of the marketing agencies by major developers.
• PropNex also strategically expanded into the Good Class Bungalow (GCB) space in Jan this year. We expect PropNex to grow its market share in this niche segment with Singapore becoming a top destination for ultra-high net-worth individuals.

Transforms Digital Landscape in Real Estate Industry

• PropNex has ventured into the proptech space with the S$1.0m acquisition of a 70% stake in Ovvy, a technology platform that connects merchants and service providers to consumers. This enables PropNex’s agents to provide value-added services to clients, and improves on sales productivity.
• In Mar 2022, PropNex also became the first agency in Singapore to set up a full-fledged Chinese language website to expand its reach to Mandarin-speaking locals and foreign investors.
• Key re-rating catalysts include:
  • faster-than-expected recovery in transaction volumes;
  • improvement in margins from rising operating leverage and
  • continued market share gains from other competitors.
• Key risks include
  • new property cooling measures;
  • sharp interest rate hikes and
  • loss of market share.

Source: Maybank Research - 29 Aug 2022