Analysts from CGS-CIMB Research and PhillipCapital have maintained their respective “add” and “buy” calls for PropNex with increased target prices after the company’s 4QFY2020 results beat expectations.
PropNex reported an 18.8% y-o-y increase in revenue to $155.6 million driven by better-than-expected HDB and private resales. However, earnings decreased by 8.9% y-o-y to $7.5 million due to lower margins of 10% (11.4% in 4QFY2019) attributable to product mix and share of loss from associates of $0.7 million.
However, CGS-CIMB analyst Lock Mun Yee notes that PropNex ended FY2020 on a high note, with full-year revenue and earnings up 22.8% and 45.2% y-o-y respectively, thanks to the stronger resale market.
“The private resale market saw a 19.9% increase in transaction volume in 2020 while transaction value rose 24.3%. The HDB resale market also recorded a 4.3%/16.6% rise in overall transaction volume/value in 2020,” she writes.
SEE:PropNex FY2020 earnings up 47.8% to $31.2 million
Lock also positively views PropNex’s gain in market share for project marketing. For FY2020, the company reported a 62.1% jump in commissions from project marketing services to $218.7 million on the back of higher transaction volume market share (48.8%).
Looking ahead, Lock expects the strong volume momentum in private resale transactions to continue propelling PropNex’s performance for FY2021. With its enlarged agent base of 9,119 as of February 2021 and consumer-centric initiatives, she believes the company is well-positioned to continue capturing market share.
“PropNex’s strategy of attracting potential buyers through consumer events and providing value-add and consumer education tools such as Monopoly PropNex Edition should enable it to continue to gain market share traction, in our view,” she writes.
Lock has raised her target price to 88.8 cents from 82.5 cents previously to account for higher private resale assumptions, with FY2021-2022 forecasted earnings per share (EPS) raised by 6.7-14.5%.
“Given its projected higher earnings performance and strong balance sheet, we believe PropNex would maintain a high dividend payout ratio for FY2021 (FY2020: 71%),” she adds.
For PhillipCapital analyst Paul Chew, the better resale market outlook also underpinned his revised DCF-based target price of $1.00 (up from 85 cents previously). His FY2021 earnings estimates increased by 11% to $30.8 million, with a lower weighted average cost of capital (WACC) of 9.8% applied on account of a lower beta observed.
He also notes that PropNex is in a healthier cash position, which helped the company declare higher dividends for FY2020.
“FY2020 operating cash flows were $42 million vs. meagre capex of $0.5 million. Large cash inflows bulked up its net cash from $81 million to $105 million. Full-year dividend jumped 57% to 5.5 cents. A $20.3 million payout is comfortably supported by operating cash flows and cash hoard on its balance sheet,” he writes.
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His current target price of $1.00 assumes yields of 6.8% backed by $105 million net cash, 33% ROEs and an estimated 53% share of residential property transactions.
Chew predicts a healthier property market going into 2021 led by resales, continuing the recovery trend in 2020.
“HDB volumes were helped by government grants, delays in BTO units and a surge in units reaching their minimum occupation period. HDB resale revenue touched a record high. Private residential resales were buoyed by their large price discounts to newly launched units,” he writes.
As at 2.13pm, shares in PropNex are trading up 0.5 cents or 0.6% at 84.5 cents.
