Analysts at PhillipCapital, Maybank Securities and CGS-CIMB Research have lowered their target prices and issued downgrades on PropNex following its earnings of $22.1 million for the 1HFY2023 ended June 30, 18.4% lower than the earnings of $27.0 million in the corresponding period the year before.
Maybank Securities’ Eric Ong has reiterated his “buy” call with a lower target price of $1.15 from $1.20 previously, noting that PropNex’s 1HFY2023 results were “soft” but “not totally unexpected”.
On the other hand, PhillipCapital’s Paul Chew has downgraded his “buy” call to “accumulate” with a lower target price of $1.16 from $1.20 previous, noting a larger than expected revenue contraction.
Finally, Lock Mun Yee from CGS-CIMB has reiterated her “add” call, but lowered her target price from $2.05 to $1.13,
Ong from Maybank says that the first half of sales for PropNex was slow after two cooling measures which has affected buyer sentiments. For the six-month period, PropNex’s revenue fell by 23% y-o-y $364.3 million in 1HFY2023 due to decrease in commission income from both agency (-13.3% y-o-y) and project marketing services (-38%).
“Notably, this was mainly attributed to lower number of transactions completed given fewer new launches, especially in 1QFY2023. As a result, 1HFY2023 gross profit margin also narrowed by 0.3 percentage points (ppt) to 9.8% in tandem with changes in sales mix as project marketing (which accounted for 31% of sales in 1HFY2023 vs almost 39% a year ago) typically commands higher margins,” says Ong.
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However, the analyst expects PropNex’s performance to rebound h-o-h, supported by a steady pipeline of new launches in the private homes market.
Ong says that the group expects 33 launches with a total of 8,000 units to hit the market
in 2H2023. For the full year, about 11,529 new units will be launched, which is more than double the 4,528 units that were launched in 2022.
Meanwhile, PropNex also saw decent growth in its network of salespersons to 12,073 (+3.5% year to date), which allows it to continue gaining market share, Ong adds.
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In addition, the analyst says that PropNex’s balance sheet is “rock solid”, with a net cash of $139.6 million, underpinned by its highly asset-light and scalable business model.
“Interim cash dividend per share (DPS) of 2.5 cents surprised on the upside, representing a dividend payout ratio (DPR) of 84% of its 1HFY2023 net profit (1HFY2022: 2.75 cents after adjusted for the 1-for-1 bonus issue; or DPR of 75%).” says Ong. “We believe PropNex is increasingly seen as a sustainable yield play given its strong balance sheet.”
In view of the group’s willingness to reward shareholders with its growing DPR, Ong says that its yield looks sustainable at about 6%, and has therefore reiterated his “buy” call.
However, he has trimmed his FY2023-FY2025 earnings per share (EPS) by 4%-8% and lowered his target price to $1.15 (based on 15x FY2024 P/E) due to more conservative sales volume and pricing assumptions.
Likewise, PhillipCapital’s Chew notes that PropNex’s revenue and patmi were 33%/30% of his FY2023 forecast, as adjusted patmi declined 24% y-o-y to $20.8 million, adding that cooling measures and a dearth of new launches pushed revenue lower.
Like Ong, Chew expects the new pick-up in launches and market share to drive a stronger 2HFY2023 performance, and notes that PropNex had a generally stable net cash.
While PropNex has tempered down its expectations of transactions and prices, Chew anticipates a healthy recovery for 2HFY2023 driven by private residential demand from HDB upgraders.
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As a result, Chew lowered his FY2023 earnings by 9% to $62.1 million, downgraded his call to “accumulate” and reduced the discounted cash flow target price to S$1.16.
Similarly, Lock from CGS-CIMB says that she likes PropNex as a leader in the property brokerage business in Singapore and its strong cash balance that will underpin its high dividend payout ratio.
She says that potential re-rating catalysts include stronger-than-projected residential market performance and contributions from en bloc transactions, but notes that weaker macroeconomic outlook and surge in mortgage rates could dampen demand for housing purchases and affect earnings.
Lock cuts her FY2023-FY2025 EPS forecasts by 54% to reflect the adjustments for its 1-for-1 bonus issue completed in May, and lower-than-expected 1HFY2023 net profit due to the slower pace of launches.
“Consequently, our target price drops to $1.13, still based on an unchanged average of net cash-adjusted FY2023 P/E of 10x and five-year DCF valuation. PropNex trades at a cash-adjusted FY2023 P/E of 10.4x,” she says.
As at 3.26pm, shares in PropNex are trading 3 cents lower, or 2.91% down at $1.
