SINGAPORE (Sept 12): UOB KayHian is starting coverage of real estate agency PropNex with a “buy” and target price of 65 cents or 10 times FY19 forecast earnings given negatives from the recent cooling measures have been priced in.

“We believe it is a low-risk proxy to Singapore property with a future-proof business model. Leveraging on its strong brand equity, PropNex has also expanded regionally,” says lead analyst Loke Peihao in a Wednesday report.

PropNex, which has 7,512 agents as at Sept 10, has dominant share of 43.8% in the residential private market in 2017 in terms of transactional value and 45.8% of the stable HDB resale market in 2016.

Compared to developers who face huge capital outlays on land bidding and construction, development risks and holding costs, PropNex offers a more asset-light approach to Singapore property.

Furthermore, the cooling measures announced on July 5 have constrained developers in terms of their new launch pricing, resulting in thinner margins.

In contrast, PropNex’s agency business is insulated due to higher commissions from developers to incentivise agents, a strong pipeline of 20 projects till end 2019 and a still resilient resale market supported by replacement demand from those who have sold their properties in an en bloc sale.

In addition, PropNex also has a strong agent focus with a future-proof business model and owner-sponsored structure.

According to UOB, PropNex’s dual-career path, training culture and marketing platform, as well as competitive compensation, have led to higher retention and growth of its agent network.

“PropNex would be the preferred ‘suitor’ among smaller agencies as the industry consolidates,” says Loke.

Meanwhile, executive chairman and CEO Mohamed Ismail and executive directors Alan Lim and Kelvin Fong own more than 70% of the company, “ensuring strong management interest alignment”.

“Our forecasts conservatively assumed a 10% y-o-y decline in non-landed new sales volume for 2019 as well as 40% marketshare by PropNex. If non-landed new sales volume for 2019 stays flat, our target price will work out to 68 cents,” says Loke.

As at 3.57pm, shares in PropNex are up 1.5 cents at 55 cents.