Maybank starts PropNex at 'buy'; group can 'easily sustain' its high dividend payout of over 70%

The way he sees it, PropNex’s premium valuation to its closest SGX-listed peer APAC Realty, is “justifiable”. APAC Realty is currently trading at 10x P/E.

This is given PropNex’s increasing market share and leadership position in Singapore, coupled with a cash generative business model.

In addition, Ong believes the group can easily sustain its high dividend payout of over 70%, backed by its strong balance sheet with its net cash at 22% of its market capitalisation. PropNex’s current dividend payout would also translate into an attractive prospective yield of around 7.0%.

Other factors that support Ong’s buoyant outlook on PropNex include the resilient residential property market in Singapore as well as the agency’s “strong economic moat” with a growing salesforce.

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“Despite macro uncertainties and cooling measures in December 2021, the local residential market has been more resilient than expected with our assumption of 7% private home price growth this year,” says Ong.

“While rising interest rates could weigh on sentiment, healthy buying interest from upgraders and first-time buyers will continue to underpin the property market,” he adds.

In July, developers in Singapore sold 834 new homes, which is up by 70.9% m-o-m. This was boosted by the successful launch of AMO Residence, which saw a take up of 98.4% at a median price of $2,110 psf.

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Propnex won the biggest market share as its agents accounted for over half of the sales that will be recognised in 2H2022, Ong notes.

As at Aug 1, PropNex continued to see above-industry growth in the number of its salespersons to 11,744, or 8.8% higher year-to-date (ytd).

“To cement its leadership position, the group 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,” says Ong.

PropNex, which expanded into the good class bungalow (GCB) space in January, is also expected to grow its market share in this segment, with Singapore becoming a top destination for ultra-high net-worth individuals.

PropNex’s venturing into the proptech space with the $1.0 million acquisition of a 70% stake in Ovvy, will enable its agents to provide value-added services to its clients.

Ovvy is a technology platform that connects merchants and service providers to its consumers.

In addition to its many initiatives, PropNex became the first agency in Singapore to set up a full-fledged Chinese language website in March. The website was established to expand its reach to Mandarin-speaking locals and foreign investors.

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SAC Capital keeps ‘hold’ on PropNex

Meanwhile, SAC Capital analyst Peggy Mak is less optimistic on PropNex’s outlook, with an unchanged “hold” call.

Mak’s target price also remains unchanged at $1.78.

In her report, Mak believes PropNex’s transaction volume will slow in the second half of 2022 due to the rising interest rates and lower supply.

“A stronger government land sale programme, and more completions of new HDB flats could also cause potential buyers to adopt a wait and see approach,” she writes.

However, Mak believes PropNex will benefit from its large agency base of 12,000, as developers, who are faced with rising financing costs and higher land and construction costs, would pivot to larger agencies to ensure a greater certainty of sale and cash flow. PropNex’s large agency base also boasts a database of available units in the resale market.

To this end, the analyst sees PropNex’s earnings growth to recover from 2Q2023.

Shares in PropNex closed 4 cents higher or 2.48% up at $1.65 on Aug 30.