Despite “blockbuster” results reported by PropNex for its 1HFY2021 ended June, UOB Kay Hian has downgraded its rating for the company from “add” to “hold”, though with a higher target price of $2.09, in an August 12 research note.
See: PropNex sees 127% surge in 2Q21 earnings, declares interim DPS of 5.5 cents
UOB Kay Hian analyst Adrian Loh highlights that PropNex’s performance was better than expected, with all business segments doing well. “The company declared an interim dividend of 5.5 cents which formed 58% of our prior full-year estimate of 9.5 cents. We subsequently upgraded our 2021 DPS estimate to 11 cents,” he says.
Given its 1HFY2021 performance, Loh has upgraded his FY2021-2023 earnings forecasts by 6-17% to reflect stronger-than-expected transaction volumes. “We have also conservatively factored in a 50% success rate for its $4.4b worth of en bloc projects which translate to a revenue uplift of $1.4 million and $4.1 million for 2021 and 2022 respectively,” he adds.
Following the earnings upgrade, Loh’s target price for PropNex increases from $1.34 to $2.09.
However, Loh believes the strong year for the company will be one that’s hard to beat. “Given the strong transaction volumes seen across all its business segments in 1H21, as well as the new and potentially lucrative en bloc team that is now in place, we worry that 2021 may be the peak earnings year for Propnex,” he says.
The way Loh sees it, PropNex’s momentum will be difficult to keep up. “In the short term, continued bullish newsflow on transaction volumes, en blocs or property pricing may prop up the share price. However, looking ahead into 4Q21 and 2022, we believe that such strength will be difficult to sustain,” he explains.
To that end, he has downgraded his rating. “Given the strong share price performance y-t-d and the stock approaching our new P/E- based fair value of $2.09, we have elected to downgrade Propnex to Hold,” he says.
Notwithstanding the downgrade, Loh points out that there’s still a lot to like about PropNex, including its ROE which nearly doubled in 1H2021 to 16.3% while the company remained in a net cash position of some $121 million. “In addition, the company generated $19.2 million in free cash flow in 1H2021 which was a 59% y-o-y increase from the $12.1 million generated in the year-ago period,” he adds.
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Shares in PropNex closed 1 cent or 0.51% lower at $1.95 on August 12.
Photo: Samuel Isaac Chua / The Edge Singapore
