Analysts from CGS-CIMB Research, Maybank Securities and DBS Group Research have increased their target prices for PropNex to $2.05, $2.20 and $1.88 respectively, up from $1.93, $1.95 and $1.61 previously.
CGS-CIMB’s Lock Mun Yee and Maybank’s Eric Ong have maintained their “add” and “buy” calls, while Ling Lee Keng of DBS has reiterated her “hold” recommendation.
PropNex reported a 4QFY2022 ended December 2022 revenue of $298.4 million, up 23.3% y-o-y, underpinned by a sharp jump in agency services revenue. The company’s patmi grew by 24.5% y-o-y to $17.8 million on lower staff costs and a one-off gain on disposal of an associate, partly offset by a slight dip in gross profit margins to 10.3% due to product mix and higher other expenses.
For the full year, PropNex’s revenue improved by 7.5% y-o-y to $1.03 billion while its patmi came in 3.9% higher to $62.4 million. The group proposed a final dividend per share (DPS) of
8 cents, bringing full-year DPS to 13.5 cents.
According to Lock of CGS-CIMB, the company’s agency services benefitted from an improvement in market share. “FY2022 revenue from agency services grew 23.3% to $640.6 million, thanks to higher commission fees from rental, HDB and private resale segments. Although transaction volumes were lower y-o-y, PropNex continued to benefit from higher market shares of 37.3% to 59% as its agent force grew 8% y-o-y to 11,667,” she explains.
Lock has raised her FY2023 to FY2024 net profit estimates by 19% to 22.2% to factor in the stronger launch pipeline and the “robust market share” of PropNex, which trades at a cash-adjusted FY2023 P/E of 8.3x. Her target price has been raised to $2.05 from $1.93 previously, on a blend of net cash-adjusted price-to-earnings ratio (P/E) and discounted cash flow (DCF) valuation.
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In 2022, the volume transaction og the private resale market fell 30% y-o-y while HDB resale activity shrank 10% y-o-y. Despite higher mortgage rates and impact from the recently announced hike in Buyers’ Stamp Duty, Lock says PropNex expects both HDB and private resale market volumes to remain stable going in 2023, thanks to the increased number of new home completions expected this year and the elevated number of HDB resale and Executive Condominiums, attaining their minimum occupation period of five years.
She notes that FY2022 commissions from project marketing services declined 12% y-o-y to $383.7 million due to fewer project launches. As a result, transaction volumes contracted 45.5% y-o-y to 7,099 units due to the impact from the property cooling measures announced in December 2021 and dwindling unsold inventory.
However, Maybank’s Ong sees transaction volumes rebounding in FY2023, with PropNex seeing an 8% y-o-y increase in salesforce headcount to 11,667 at the start of 2023 from 10,796 a year ago.
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“We expect new private home sales to pick up given the larger pipeline of launches of about 12,000 units in 2023. According to management, demand for HDB resale flats is also likely to remain buoyant with 28,000 to 30,000 flats likely to be resold this year, aided by the recent Budget announcement on additional CPF housing grants for first-time buyers,” he adds.
Ong, whose TP is based on a 14x FY2023 P/E, says that the company’s balance sheet is “robust” with a net cash position of $139 million, or 37.5 cents per share, underpinned by its highly scalable and asset light business model. “The group positively surprised with a proposed 1-for-1 bonus issue of up to 370 million new shares to reward shareholders and potentially boost its trading liquidity. Notwithstanding the share price outperformance, its forward dividend yield remains attractive at over 7%, in our view.”
Meanwhile, Ling of DBS says the resilient property market supported by strong pipeline of new
launches, but that a price increase could be slower. “The knee-jerk reaction to the latest round of cooling measures introduced on September 30, 2022 could negatively impact 1QFY2023 financials, given the delay in revenue recognition from the point of transaction,” she explains.
She expects buyers to remain cautious but overall transaction velocity to remain supported by a strong pipeline of new launches, but that the “swing factor” will come from foreign buyers looking to call Singapore home. “Overall, we expect price increase to be modest given the high overall quantum, constrained by macro headwinds including rising inflation and slower economic growth, adds Ling
On the back of the resilient property market, she has raised her property transaction volume
assumption for the various segments by 5% to 8% for FY2023 and FY2024, raising her earnings forecasts for both years by 17% and 20%, respectively. As a result, her target price has been raised to $1.88 from $1.61 previously, still pegged to an 11x P/E on FY2023 earnings, about 1 standard deviation (s.d.) above PropNex’s historical mean.
As at 2.14pm, shares in PropNex were trading 1 cent or 0.54% down at $1.86.
