PropNex
Price targets:
CGS International ‘add’ 94 cents
DBS Group Research ‘hold’ 95 cents
Maybank Securities ‘hold’ 87 cents
Lower targets after 1H results
Analysts from CGS International and Maybank Securities have lowered their target prices on PropNex after a “slow start to the year”.
In 1HFY2024 ended June 30, PropNex reported earnings of $19 million, 13.8% lower y-o-y amid headwinds from limited new property launches. The group’s 1HFY2024 results also suffered from the impact of property cooling measures, it said in its statement dated Aug 13.
Revenue fell 5.1% y-o-y to $345.6 million due to lower commission income from project marketing services but mitigated by slightly higher commission income from real estate agency services.
Gross profit fell 6.5% y-o-y to $33.4 million.
See also: OCBC, citing potential recovery, initiates coverage on Nanofilm with tentative 'hold' call
CGS International’s Lock Mun Yee has lowered her target price to 94 cents from $1.04 after PropNex’s earnings per share (EPS) of 2.57 cents stood at only 36.7% of her FY2024 expectations.
“According to management, a total of 1,889 new homes was transacted industry-wide in 1HFY2024, down 44.2% y-o-y, but the impact of this overall volume decline on PropNex was partly mitigated by [its] gain of 7.6 percentage points in market share to 55.5% for new home sales segment,” Lock writes in her Aug 20 report. “Although management expects sequentially stronger new home sales volumes in 2HFY2024, we anticipate full-year FY2024 sales volumes to still be lower y-o-y, at 5,500–6,000 units.”
To reflect the lower new home sales transaction assumptions, Lock has cut her EPS estimates for FY2024 to FY2025 by 7.9% to 13.8%. Her lower target price is still based on the average net cash-adjusted FY2024 P/E of 10 times and a five-year discounted cash flow (DCF) valuation.
See also: Macquarie revises Singapore earnings growth for FY2024 to 7% from 3%
However, the analyst has retained her “add” call as she likes PropNex’s leading position in the property brokerage business in Singapore. Its strong cash balance of $116.4 million as at the end of 1HFY2024, which is likely to underpin its higher dividend payout ratio, is another plus.
Meanwhile, the analyst sees buying sentiment to dampen over the next six to 12 months after the government announced that it would reduce the loan-to-value for HDB housing loans to 75%. The policy will be made effective from Aug 20 onwards. In Lock’s view, the move may see potential buyers reevaluating their decisions for home purchases due to the higher quantum of downpayment required, particularly for larger HDB flats.
Maybank analyst Eric Ong has kept his “hold” call with a lowered target price of 87 cents from 94 cents as PropNex’s earnings also stood at 36% of his full-year estimates. His new target price is still based on a target P/E of 15 times.
“While both HDB and private resale volumes were relatively resilient, we note that private new home sales hit a two-decade low. Hence, we trim our FY2024–FY2026 EPS forecasts by 10%–14% on fewer transactions,” Ong writes in his Aug 13 report.
That said, Ong likes that PropNex has a growing salesforce, which puts it in a “sweet spot” to capture opportunities in the secondary market, which is currently active. PropNex’s salesforce expanded to 12,700 on Aug 7 from 11,999 on Jan 1.
“In our view, this helped to substantially cushion the slow private new home sales given the softer take-up rate,” he says.
“Despite the macroeconomic headwinds, PropNex’s balance sheet remains rock solid with net cash of $116 million (debt-free), underpinned by its asset-light and strong cashflow generative business model,” he adds.
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In a sector report by DBS Group Research dated Aug 14, analysts Derek Tan and Tabitha Foo noted that PropNex and Apac Realty saw lower results amid a slower market in the 1HFY2024.
The period saw a “significant drop” in several new launches, likely due to the weak buyer sentiment amid the ongoing high-interest-rate environment, macroeconomic uncertainties, and property cooling measures, say Tan and Foo.
“New launches could also have been pushed back pending regulatory approvals or delays in the completion of the showflats,” they add. “As a result, both new private launches and new launch sales hit a new half-year low since 2004 at 1,938 and 1,889 units, respectively. This pales in comparison to the 10-year (2014–2023) historical average annual new home sales of 8,853 units, according to PropNex.”
In 2H2024, Tan and Foo expect the Singapore market to see a potential uptick with the influx of new launches in September and October.
“We expect the exciting line-up of new launches ahead to potentially rejuvenate the market, and we believe the latter half of the year will outperform 1HFY2024 sales volumes,” they write.
“Some of the upcoming projects we will be watching include Meyer Blue (226 units), Emerald of Katong (a relatively large project with 846 units following the launch of Grand Dunman, Tembusu Grand and The Continuum in the vicinity), Chuan Park (huge development with 916 units, surrounded by relatively old projects) and Parktown Residence (mega development with 1,190 units in a mature estate),” they note.
At this point, valuations seem to be “fair” for both agencies, which are both trading at forward P/E ratios ranging between 13 times to 15 times from their historical range of 10 times to 18 times.
The analysts have kept their “hold” calls on Apac Realty and PropNex with target prices of 48 cents and 95 cents, respectively. — Felicia Tan
Sats
Price targets:
Citi Research ‘buy’ $3.76
DBS Group Research ‘buy’ $3.60
‘Buy’ after robust 1QFY2025 results
Following robust 1QFY2025 ended June 30 results for Singapore Airport Terminal Services (Sats), analysts at Citi Research and DBS Group Research have kept their respective “buy” calls on the group at unchanged target prices of $3.76 and $3.60 respectively.
DBS’s Jason Sum had previously increased his target price to $3.60 from $3.40 in a June 3 report.
Citi’s Kaseedit Choonnawat, Eric Lau and Amy Han note that Sats’s core profit of $57.8 million in 1QFY2025 formed 30% of the streets FY2024/FY2025 estimates.
They write: “Sequential traffic recovery at Changi and global air freight improvements along with Sats/Worldwide Flight Services (WFS) transformation should continue to drive earnings and share price higher.”
The analysts add that air cargo demand should see ongoing strength, especially between China and the US, thanks to e-commerce.
“We see potential mid-term upside from Sats’s fresh frozen meal capability, which is yet to become material.”
Key debate factors noted by the Citi analysts include potential revenue, profit contributions and timeline of Sats’s central kitchen in Thailand, which aims to be of similar capacity to Singapore, as well as organic passenger volume upside from Singapore as Changi Airport’s traffic hovers close to full recovery to pre-Covid levels.
Other factors include the continued performance of Sats-WFS revenue and cost synergies, the outlook of airfreight and sustainability of cross-border e-commerce, and updates to Singapore Airlines C6L ’ contract with Sats.
Conversely, key downside risks include the ongoing consumption shift to services, potentially lasting into FY2024, labour costs pressure, which accounts for around 50% of WFS’ operating expense (opex) per Citi’s estimate, and finally, a global recession dragging airfreight and passenger volume.
Meanwhile, the analysts at DBS note that Sats’s core profit in the quarter had significantly beat their expectations of $40 million to $50 million.
They add: “Additionally, Sats achieved a significant turnaround in its free cash flow in 1QFY2025, generating free cash flow (FCF) of $36.7 million, compared to negative FCF of $89.2 million in 1QFY2024, placing the group on track to reduce its net debt by $200 million in FY2025.”
The DBS analysts also note that Sats’s operating margins should continue to strengthen over the next two years, with the group achieving better operating efficiency through economies of scale and enjoying stronger pricing.
“With Sats also continuing to make more progress in realising operational synergies from WFS and potentially benefiting from lower interest rates over the next two years, given that a considerable portion of its borrowings is due to mature over the next two years, we are inclined to believe that we could see more positive surprises in the subsequent quarters,” concludes the team. — Douglas Toh
