OCBC Investment Research has initiated coverage on PropNex with a “buy” call and a fair value estimate of S$0.91. It anticipates that upcoming project launches in the second half of 2024 and first half of 2025, and a potential increase in sales momentum could boost “positive sentiment” towards the real estate agency’s stock.
“We believe that the negative sentiment towards the stock, largely attributed to the overhang of weak new project launches, will improve,” said OCBC analyst Donovan Tan on Monday (Oct 21).
Noting that PropNex has over the years increased its dividend payout ratio and paid 92.9 per cent of its earnings in FY2023, Tan anticipates a dividend payout ratio of 90 per cent.
He said that this implies an attractive dividend yield of 6.3 per cent and 6.8 per cent for FY2024 and FY2025, respectively, based on the last closing price of S$0.79 as at Oct 18.
“PropNex operates a highly cash-generative business with an asset-light model, allowing it to deliver returns to investors through high dividend payouts,” he said.
Recently, PropNex’s share price experienced a downtrend, returning -15.1 per cent year to date, based on Oct 18’s closing price. This decline can be attributed to a reduction in new project launches throughout 2023 and 2024, which has negatively affected PropNex’s earnings for F20Y24, he added.
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OCBC lowered its FY2024 revenue estimate for PropNex by 5.9 per cent to S$789 million, from S$838.1 million. At the same time, it increased its revenue estimate for FY2025 to S$826.5 million, which is a 4.5 per cent rise compared with FY2024.
It forecasts PropNex’s FY2024 earnings per share to decrease by 14.5 per cent to S$0.055, before growing by 7.4 per cent to S$0.059 in FY2025. This implies a cash-adjusted FY2024 price-to-earnings of 13.2 times, stated the research house.
Dominant market share
In Tan’s view, PropNex’s sell-off throughout the year could be “overblown” despite the expected decline in profitability in FY2024, considering the company’s dominant market share across the home property sector.
PropNex has a local salesforce of more than 12,000 agents, representing about one-third of all agents in Singapore. This has allowed the real estate agency to establish a dominant position in the property market, with a market share that is 35 per cent greater than that of its closest competitor.
In Singapore, around two-thirds of home transactions are closed by PropNex salespersons which highlights the “higher productivity” of its sales team.
This growth is driven by the company’s comprehensive training programmes and substantial investments in proprietary technology platforms that can scale alongside the increasing number of salespeople, said Tan.
“We expect this edge to continue attracting more agents and consequently increasing the firm’s market share of property transactions,” he added.
Tan also noted that PropNex’s weaker revenue from new home sales can be partially offset by the strength in the resale market. Resale Housing and Development Board flats and private property continued to experience volume and price growth through 2024, with Q2 2024 HDB resale volume hitting a record high since Q3 2022.
Shares of PropNex were flat at S$0.785 as at 1.18 pm on Tuesday.
