Market watchers are largely positive on PropNex, after the listed real estate agency reported 2.1 times higher earnings of $14.4 million for the 3QFY2021 ended Sept 30. Analysts from PhillipCapital and UOB Kay Hian have kept their “accumulate” and “buy” calls, while analysts from CGS-CIMB Research, DBS Group Research and SAC Capital have kept “hold” on the property group.
PhillipCapital’s Paul Chew has kept his target price of $2.08 as PropNex’s earnings and revenue for 3QFY2021 stood within his expectations. His forecast for the FY2021 remains unchanged, as well. In his report, Chew cited its broad-based growth, record net cash of $123 million as at end-September, as well as the higher dividend payout of 75% to 80% of PropNex’s FY2021 earnings, compared to the 70% in FY2020.
Chew has also raised his dividend forecast for the FY2021 by 17% to 13.5 cents per share, implying a final dividend of 8 cents per share. “Our forecasted annual dividend payout of around $50 million is well supported by operating cashflows. 9MFY2021 free cash flow was around $57 million,” he says.
He adds that PropNex’s revenue run rate is at a new level of around $200 million per quarter, up from $100 million in the prior years. “Supporting this new altitude of revenue will be the record growth in agents, maiden revenues from collective sales and healthy property transactions aided by a recovering economy, low interest rates and rising replacement costs.”
Looking ahead, Chew expects the momentum in real estate transactions to sustain with key drivers such as low interest rates, delays in HDB Build-to-Order (BTO) flats, rising land prices, construction costs and an expanding agency force.
Meanwhile, UOB Kay Hian’s Adrian Loh has upped his target price estimate on PropNex to $2.17 from $1.97 previously as PropNex’s net profit stood at 77% of his FY2021 estimate. “Our new target P/E multiple of 12.6 times is 2 standard deviations above the company’s historical P/E average of 6.8 times. Given the company’s huge cash pile of $123.7 million as at end 3QFY2021, equating to 33 cents per share, we note that its ex-cash P/E is only 8.6 times,” he says.
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Loh is also positive on PropNex’s confidence in being able to maintain a higher revenue base of $200 million per quarter moving forward, as well as its larger sales force, which should drive transaction volume in 2022.
Furthermore, with the low likelihood of cooling measures in the near term, PropNex is unlikely to see any impact to its figures anytime soon. In addition, the continued decline in inventories of unsold private homes — which is estimated to be over 17,100 — presents PropNex with opportunities.
CGS-CIMB’s Lock Mun Yee has kept her target price of $2.07 as PropNex’s earnings per share (EPS) of 3.89 cents for the 3QFY2021 come in at 27.4% of her FY2021 forecast. Lock says the en bloc segment, which looks to be gathering more momentum in activity, could provide another source of income for the group. That said, she has not factored in any contributions into her forecasts yet.
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Based on PropNex’s results, Lock has raised her EPS estimates for the FY2021 to FY2023 by 5.1% to 6.7%. “Our ‘hold’ rating is retained on limited near-term share price upside, although we believe its attractive projected dividend yield of 6.3% (assuming higher payout ratio of 80%) would be supportive of its share price,” she writes.
DBS’s Chung Wei Le and Ling Lee Keng have upped their target price marginally to $1.84 from $1.83 previously. “Our target price is based on 12.0 times FY22F P/E, which [is] +1.7 standard deviation of its historical mean, reflecting the strong momentum in the property market,” they write.
Like CGS-CIMB’s Lock, the “hold” recommendation from the DBS analysts comes on the back of the stock’s “rich valuation”. This is despite their view that PropNex’s EPS could “taper sideways” in the next few years. “Furthermore, the stock is at risk of de-rating if property cooling measures are announced,” they note. While Chung and Ling are slightly more optimistic on PropNex’s earnings compared to their peers, they are expecting a lower volume of launches to weigh on the group’s earnings growth in FY2022.
Finally, SAC’s Tracy Lim has lowered her target price to $1.94 from $2.00 as PropNex’s 9MFY2021 revenue accounted for 87.9% of her FY2021 estimates. The group’s earnings for the nine-month period surpassed her forecasts by 15.6%.
“Our target price is based on a P/E multiple of 13.68 times, which is based on forward 12-month P/E +1 standard deviation above its mean, based on past 10 quarters of average P/E,” she writes. “We are positive about its market leadership, strong cash holdings and market’s high property prices. FY2021 has been a strong year for PropNex, but we think earnings might be at their peak. The market has also largely priced in PropNex’s strong valuations.”
As PropNex’s management guided that its dividend payout would be raised in FY2021, Lim has raised her final dividend estimate to 7.50 cents per share. “With its strong 9MFY2021 results, we have adjusted our FY2021 revenue estimates up 13.4% to $923 million, and FY2022 up 15.5% to $790.1 million to reflect other potential drivers, which are higher headcount which can increase market share, and border reopening could increase foreign investments,” she says.
“Accordingly, FY2021 Patmi has been adjusted up 14.2% to $61.2 million, and FY2022 up 15.3% to $49.7 million.”
Photo: Samuel Isaac Chua/The Edge Singapore