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Even after cooling measures, PropNex’s 'steady' 3QFY2022 results convinces doubtful analysts, earns upgrade

Jovi Ho
Jovi Ho11/14/2022 10:40 AM GMT+08  • 5 min read
Even after cooling measures, PropNex’s 'steady' 3QFY2022 results convinces doubtful analysts, earns upgrade
PropNex remain resilient amid cooling measures.
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Analysts are keeping a positive stance on Singapore’s largest listed real estate broker PropNex following its recent 3QFY2022 ended September business update.

During the quarter, net profit after tax (NPAT) came in 17.8% higher y-o-y at $18.2 million, while revenue was 10.2% higher than the previous year at $258.4 million. However, on a 9MFY2022 basis, NPAT was 6.7% lower y-o-y at $46.5 million, while revenue increased by 2.1% y-o-y to $730.8 million.

According to Maybank Securities analyst Eric Ong, PropNex is “holding steady” as the group’s 3QFY2022 results came in above Ong’s expectations.

Ong is raising his FY2022 earnings per share (EPS) forecast by 12% on “better-than-expected transaction volumes” but leaves his FY2023-FY2024 forecasts intact amid the current macro uncertainties.

In a Nov 10 note, Ong is maintaining “buy” on PropNex with an unchanged target price of $1.95, the highest among the brokerages named here.

New private home sales are set to rebound in 2023, writes Ong. “Revenue for the quarter grew 10.2% y-o-y to $258.4 million, driven by robust turnover from agency services (higher number of transactions completed) but partially offset by decrease in commission income from project marketing services (fewer new launches by developers).”

See also: 'Brighter outlook' for Hong Leong Asia as China reopens, building materials segment to report doubled profits: CGS-CIMB

Gross profit margin (GPM) narrowed slightly by 0.2 percentage points (ppt) to 10.3% due to lower contribution from project marketing services, which generally command better margins as compared to agency services’ resale transactions, notes Ong. “We are expecting new private home sales to pick up next year given the strong project pipeline.”

Meanwhile, UOB Kay Hian Research analyst Adrian Loh says investors should look out for a “decent dividend” from PropNex.

“During the analyst call, management noted that while it has paid out 75% of net profits in the past, it has the authority to pay up to 80% of profits and that it would always seek to reward shareholders,” notes Loh. “Thus, we believe there is a reasonable chance that our current payout ratio estimate for FY2022 of 75%, which implies a yield of 8.8%, could be exceeded when the company announces its FY2022 results in mid-to-late February 2023.”

See also: The worst is over for Frencken, Maybank upgrades to 'buy' with a higher TP of $1.21

In a Nov 11 note, Loh is maintaining “buy” on PropNex with a lower target price of $1.92 from $2.07 previously.

Private residential prices should moderate, writes Loh. “Although landed properties in Singapore have seen the largest price increases in the past 12-18 months, PropNex noted that such price increases have slowed down in the face of affordability issues.”

While foreigners have returned to the market, the company noted that Singaporeans made up 83% of purchasers in non-landed home sales, compared to 71% in 2011.

Loh is looking forward to volume growth in 2023. “While 2022 will likely end with approximately 4,000 new units launched, there are more than 11,000 units across 40 projects planned for 2023. Thus, with PropNex having more than 12,000 agents (with long term plans to expand to 15,000 agents), it stands to be the largest beneficiary of the volume growth,” writes Loh.

Loh has upgraded earnings forecasts for FY2022-FY2024. “We have upgraded our FY2022/FY2023/FY2024 net profit estimates by 7%, 8% and 13% respectively to take into account the higher earnings base from having more agents under its banner as well as the higher volume of new launches in 2023.”

DBS and PhillipCapial upgrade PropNex

DBS Group Research analyst Ling Lee Keng has upgraded PropNex to “hold” from “fully valued”, with a higher target price of $1.61 from $1.19 previously.

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Earnings for FY2022/FY2023/FY2024 were raised significantly on the back of the higher transaction volume assumptions, writes Ling in a Nov 11 note. “Since our downgrade to ‘fully valued’ on Sept 30 post the introduction of the latest cooling measures, the share price eased 17% to a low of $1.25 three weeks later and has seen some rebound recently.”

The physical property market has also held up better than Ling’s earlier expectations. “Given the more resilient property market now supported by a strong supply pipeline of new launches and stable prices, we raise our target price pegged to 11x FY2023 earnings.”

According to Ling, the market now takes a shorter time to adjust to the cooling measures. “The market took a longer time to adapt to the earlier rounds of cooling measures as compared to the recent rounds. The gestation period became shorter during the rounds of cooling measures in 2018 and 2021, of about one to two quarters, compared to about four years in 2013, using the Private Property Price Index as a gauge.”

PhillipCapital analyst Paul Chew has also upgraded PropNex, this time to "buy" from "neutral". Chew has also raised his target price to $2 from $1.74 previously.

Based on his estimates, PropNex's results for the 3QFY2022 were a "huge earnings beat". The property agency's year-to-date (ytd) revenue and patmi both stood at 96% of Chew's FY2022 forecast, excluding one-offs.

"We underestimated PropNex’s market share gains especially in private resale, the increase in agent size and rise in selling prices," Chew writes.

Further to his report, Chew has also upgraded his patmi forecast for the FY2022 by 34%.

"We expect earnings growth to return in FY2023. New home sales will rebound with the expected 11,300 new launches (FY2022: 4,500). Resale recovery will be from widening prices compared to new launches. The upside in volumes will be determined by foreign demand. Rental volumes will be supported by the expected surge of temporary occupation permit (TOP) units in FY2023," he writes.

As at 10.55am, shares in PropNex are trading 4 cents higher, or 2.6% up, at $1.58.

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