OCBC Investment Research analyst Donovan Tan has initiated coverage on PropNex with a “buy” call on Oct 21.
PropNex is Singapore’s largest real estate agency with over 15,000 salespersons across its 23 regional offices in Singapore, Indonesia, Malaysia, Vietnam, Cambodia, and Australia. PropNex has over 12,000 salespersons in Singapore itself, which accounts for about one-third of all the agents in Singapore and 35% more than its closest competitor, notes Tan.
“PropNex salespersons successfully closed around two-thirds of home transactions, highlighting the exceptional productivity of the company's sales team. We attribute this growth to PropNex's comprehensive training programs and substantial investments in proprietary technology platforms that can scale alongside the increasing number of salespeople,” he adds.
As such, the analyst expects PropNex’s edge in having its own technology platforms to continue attracting more agents and consequently increasing its market share of property transactions.
In addition, Tan likes PropNex’s highly cash-generative business and asset-light model, which allows the company to deliver “solid” dividend returns to its investors. Based on PropNex’s closing price of 79 cents as of Oct 18, PropNex has a dividend yield of 6.3% based on Tan’s FY2024 estimates. With PropNex increasing its dividend payout ratio and has paid 92.9% of its earnings in FY2023, the analyst is expecting the group to pay out 90% of its earnings in FY2024, he writes.
To this end, Tan believes the negative sentiment towards the counter, which is largely due to the overhang of weak project launches, will improve.
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“This anticipation is based on the expectation of improvement in the coming months as more projects come online amid a falling interest rate environment, which should rejuvenate the market,” he writes.
“Additionally, the sell-off throughout the year could be overblown notwithstanding the expected decline in profitability in FY2024, considering the company's dominant market share across the home property sector,” he adds.
In his view, the weaker revenue from sales of new homes can be partly offset by the strength in the resale market with resale Housing and Development Board (HDB) flats and private property seeing continued volume and price growth in 2024.
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With this, Tan has given PropNex a fair value estimate – or target price – of 91 cents, which is based on a five-year discounted cash flow (DCF) valuation. His estimate assumes a risk-free rate of 2.5% and a beta of 1.03, which derives a cost equity of 10.2%.
However, the analyst expects PropNex to see its earnings per share (EPS) drop by 14.5% to 5.5 cents in the FY2024 ending Dec 31. The company’s FY2025 EPS is, however, expected to grow by 7.4% to 5.9 cents.
Shares in PropNex closed 0.5 cents lower or 0.63% down at 78.5 cents on Oct 21.
