SINGAPORE (Oct 14): UOB Kay Hian has upgraded real estate agency PropNex to a “buy” call with a higher target price of 56 cents, up 12% from the previous 50 cents.
This is on expectations of a strong rebound for the group in 2H19, on the back of several areas of strength that the group could tap on.
According to analyst Wong Shueh Ting, PropNex can expect stronger project marketing during the second half of the year, as a result of delayed option to purchase (OTP) transactions overflowing from 1H19.
The management previously noted that the property cooling measures in July last year had resulted in a longer lead time of 6-9 months to exercise OTPs This was due mainly to a more onerous 12% additional buyer’s stamp duty (ABSD), compared to the previous 7%.
“[PropNex] clarified that their revenue recognition policy is contingent on their clients exercising their OTPs (and earning the commissions). As a result, some of OTPs initially expected to complete in 1H19 will likely overflow (and boost 2H19 results),” notes Wong in a retail report on Monday.
“Management expects revenue recognition impact to be transitional, and to normalise after four quarters” she adds.
Apart from stronger prospects for the second half of the year, PropNex has established itself as a market leader in product launches with 47.7% of units sold in 2Q19. The group also closed the highest number of units against other joint marketing agencies for almost all of the top 10 best-selling projects from April to June in the same quarter.
“Some of the projects which PropNex has leading market share in include Sky Everton (39%), Amber Park (33%), and Parc Esta (41%),” shares Wong.
In addition, PropNex has also been active on the regional expansion front.
The group has been expanding into Malaysia through its licensee, PropNex Realty Sdn Bhd, as well as Indonesia and Vietnam via franchising.
More Southeast Asian countries are on the group’s radar in the near term, especially since it has registered its brand as a trademark across the 10 jurisdictions.
Wong also notes that PropNex has maintained its position as the largest listed real estate agency despite the industry consolidation. As at Oct 11, the group has 8,406 salespersons, a 13.6% increase compared to the start of the year.
“[This] can be attributed to strong pull-factors like its top-notch training, development programmes, and strong collaboration culture,” says Wong.
In addition to the large headcount, Wong notes that the group has also launched the PropNex Personal Assistant (PA) mobile application, enabling it to stay ahead of competition by making clients’ real estate experience seamless and efficient.
As at 3.14pm, shares in PropNex are trading half a cent higher at 49.5 cents, translating into a price-to-earnings (PE) ratio of 10.7 times and a dividend yield of 6.5% for 2019F according to UOB valuations.
