SINGAPORE (May 22): UOB Kay Hian is maintaining “buy” on PropNex while lowering its target price to 60 cents from 66 cents previously.
The new target price is based on DCF and 2019F P/E of 10 times with reference to its closest listed competitor, APAC Realty, and comes after cutting net profit estimates by 11% to 15% for 2019-21F to reflect a shift in gross profit mix as well as higher staff cost assumptions.
UOB’s downwards earnings revision follows the release of PropNex’s 1Q19 results, which fell short of expectations due to lower project marketing contributions as a result of non-completed Options to Purchase (OTPs) and a time lag in sale recognitions.
In a report last Thursday, Jonathan Koh says he nonetheless expects improved 2H earnings amid industry consolidation.
This is because the company is likely to see an influx of strategically-positioned and sensitively-priced private residential projects for the rest of 2019, according to the analyst, which would in turn serve as a “pull factor” for upgraders and investors.
“Management expects resale to pick up momentum in 2H19, as en-bloc owners are receiving their sale proceeds, and will be looking for replacement homes that allow for immediate occupation… although private resale (27%) and new project launches (20%) make up c.47% of total revenue, they expect these two segments to regain their weightage to levels seen in 2018 (e.g. 57%),” says Koh.
The analyst also believes Singapore’s public housing market continues to demonstrate resilience particularly among the resale market, where he observes sustained demand and price stabilisation.
As such, he sees further upside opportunities with the launch of PropNex’s new service HDB Auction, which provides HDB flat owners an alternative option to market their housing units through the platform.
“There are over 1 million HDB owners in Singapore with 22,000 and 23,000 HDB resale transactions respectively in 2017 and 2018 respectively… The platform is particularly useful for divorce cases and property under estate,” he notes.
Last but not least, Koh is positive on PropNex for its reputation as a market leader in new project launches on top of being the largest listed real estate agency with the widest agent network – a title which he attributes to the group’s “top-notch training, development programmes, and strong culture of sharing and collaboration”.
On that note, he also considers the company’s recent introduction of its Corporate Leasing and Valuation departments as likely drivers of revenue growth.
As at 4:31pm, shares in PropNex are trading flat at 50 cents or 2.5 times FY19F book value.
