• FY25 revenue was within expectations. PATMI was below our FY25e estimates at 89%. Margins and interest income were below our estimates. FY25 PATMI jumped 72% to S$70.4mn. FY25 ordinary dividends jumped 81% to 9.5 cents (or 100% payout ratio). 
• Guidance for FY26e is for a 17% decline in new home sales (excl. EC). Both private and HDB resale volumes are expected to be flat, supported by 3-4% price growth. 1H26 earnings will register the strong unbilled sales in 4Q25.
• We lower our FY26e PATMI by 15% to S$70.7mn. Our DCF target price is raised to S$2.08 (prev. S$2.02) as we roll over our forecast. We downgrade our recommendation from BUY to ACCUMULATE. The lower number of launches and absence of pent-up demand will impact new home sales. An expected 8,800 units are to be launched in 2026, down from last year’s 11,409 units (excl. EC). PropNex pays a yield of 4.9%, supported by net cash of S$149mn and ROE of 59%. It remains the leader in real estate agency with a market share of 61% of HDB and private residential transactions.

• 1H25 results were above expectations. Revenue and PATMI were 64%/75% of our FY25e estimates. 1H25 net profit jumped 122% YoY to a record S$42.5mn. By segment, private resale and new homes registered record revenues. Interim dividend jumped 122% to 5 cents.
• 1H25 earnings growth was driven by a 183% YoY spike in project marketing or new homes revenue. The growth was in line with Singapore's new home sales (ex-EC) surging 201% for the six months ended March 25. PropNex’s market share in major launches averaged 51%.
• We raised our FY25e earnings by 32% to S$78.8mn. 2H25 revenue will be supported by the robust new home sales, especially in July and August, and the planned launch of 7,714 units (1H25: 5,429). We also expect PropNex to further increase its market share with the addition of 982 agents (+8%) this year to 13,618. It is the largest increase in four years and double the rate of growth for the next three largest agencies combined. Our DCF target price is raised to S$2.02 (prev. S$1.33) as we raise our earnings and lower our risk-free but raise our growth assumptions. PropNex pays a forecasted dividend yield of 6.1%, supported by net cash of S$137mn and ROE of 63%.

• YTD5/25 new home sales (excl. EC) are up an estimated 163% YoY to 4,339 units. However, June sales are expected to be slower due to fewer launches during school holidays. 2H25 pipeline of planned new launches (excl. EC) of 7,168 units will drive sales, especially from July. 2H25 new launches are around 50% more than 1H25’s 4,669 units.
• After the huge 24% bounce in 2024, private resale (excl. EC) grew 6% YoY for YTD5/25 to 5,764 units. The growth is within PropNex’s guidance of 0% to 7%.  However, HDB resale volumes have been weak, down 6% YTD5/25.
• We maintain our FY25e earnings. There is upside to our forecast due to the stellar performance of new home sales. We believe the sentiment for new launches remains healthy and is supported by low interest rates. The two major projects launched post-2 April tariff or liberation day have seen 40-50% take-up rates despite being located in the higher price RCR region. Our BUY recommendation and target price of S$1.33 are maintained. PropNex has an enviable 64% market share of property transactions with an attractive dividend yield of 6.1%. The S$48mn p.a. dividends are backed by an annual free cash flow of S$64mn and net cash (and fixed income securities) of S$152m. Regulatory catalysts include the relaxation of foreign buyer ABSD and the reduction of the wait-out period for downgraders.

• 1H24 results were below expectations. Revenue and PATMI were 39%/33% of our estimates. Earnings dragged down by a 20% YoY drop in new home sales revenue to S$91mn. The lack of new launches in 1H24 was the reason for the weakness.
• Resale transactions were healthy and supported a 7.4% YoY growth in revenue to S$161mn. This includes private, HDB, and landed resale. The large price gap between new home prices and declining affordability has sparked more interest in the resale market.
• We lower our FY24e earnings by 11% to S$50.3mn. Our revenue is cut by 6% to account for the disappointing new homes revenue. Our DCF target price was lowered to S$0.89 (prev. S$0.97). We upgraded to BUY from ACCUMULATE due to the recent weakness in the share price. We expect a recovery in new home sales in 2H24. Around 6,500 units are expected to be launched in 2H24 (1H24: 2,408). The sales window will be tight in view of the festive periods. The outlook for 2025 may improve as interest rate cuts can build market confidence. PropNex enjoys a 66% market share in the number of agents in Singapore and a 63% share of home transactions (private and HDB resale). It pays an attractive dividend yield of ~8%, supported by net cash of S$140mn.

• 2023 results were below expectations. Revenue and PATMI were 83%/76% of our estimates. 2H23 adjusted PATMI declined 26% YoY to S$26.2mn, dragged down by weakness in new launch transactions. The dividend for FY23 dropped 11% to 6 cents or 6.9% yield.
• Transaction volumes in 2023 disappointed. Consumer sentiment was weak and hesitant with April's rising interest rates and cooling measures. Despite new launches rising by 66% in 2023 to 7,551 units, weakness persisted.
• We lower our FY24e earnings by 16% to S$56mn. Our DCF target price was lowered to S$0.97 (prev. S$1.16) and ACCUMULATE recommendation maintained. We expect a recovery in transactions in FY24e. Driving transactions are recovering sentiment post-cooling measures, a higher number of new launches, a surge in residential completions, resilient HDB prices for upgraders, and lower mortgage interest. PropNex remains the largest real estate agency in Singapore, with 62.5% market share in private residential and HDB resale transactions. The company pays an attractive yield of 6.9% (or S$44mn) backed by S$148mn net cash.

The Positive

+ Market share gains and rising cash pile. PropNex shared that in 2023, its market share in new launches crept up 0.5% to 47.9%. Meanwhile, the share in resale rose a larger 6.8% points to 65.8%. HDB resale declined by 0.4% to 64.7%. It remains the largest real estate agency in Singapore, with 12,233 agents (or 66%). Cash continues to pile up in 2023 with a free cash flow of S$55mn (2022: S$49mn). The dividend payout ratio continues to rise to a record 93% in FY23.

The Negative

- Weakness in new launch revenue. Revenue in new launches declined by 36% YoY to S$128mn. The fall in sentiment post-cooling measure and the larger number of units available for resale affected demand. Gross margins contracted as new launches generate higher margins with the additional 0.5% commission paid to the agency.  

• 4Q22 earnings growth of 24% YoY to S$17.8mn exceeded our expectations. FY22 revenue and PATMI were 107%/107% of our FY22e forecast. Despite lower new launches, PropNex successfully pivoted towards the resale and rental market. The higher GST may have also pulled in earlier recognition of some transactions this quarter.
• Rental was the highlight with revenue growth of 69% YoY to S$56mn. Other areas of strength were private and HDB resale. Final dividend was raised by 14% 8 cents and a 1 for 1 bonus issue was announced.
• We believe the set-up for FY23e is positive. Property prices are expected to be stable but volumes are expected to rebound strongly. New launches are expected to be almost triple last year’s 4032 units. The rental market is expected to be supported by around 17,000 private home completions, and resale could be buoyed by 4,000 EC and 16,000 HDBs (plus higher grants) reaching their minimum occupancy period. Another driver to earnings is the 8% jump in salespersons to 11,667. We raised our FY23e earnings by 8% to S$68.3mn and the target price is raised to S$2.40 (prev. S$2.00). Our BUY recommendation is maintained.

The Positives

+ Strong market share gains. FY22 was a banner year for PropNex. Despite the drop in primary and secondary transaction volumes by 23% and residential leasing being down by 8% in 2022, revenue grew 8% to a record S$1bn. We believe there were market share gains, especially against the smaller agencies. A key differentiator has been their sales process and continuous efforts in engaging consumers that pivoted to the other segments, as primary sales were sluggish due to the collapse in new launches.

+ As expected, ample cash flow. FCF generated in FY22 was S$48.7mn (FY21: S$80mn). There was higher working capital of S$23mn tied up with receivables than a year ago. PropNex ended FY22 with net cash of S$138mn (FY21: S$145mn). The current dividend is around S$50mn p.a., well supported by annual operating cash flow and net cash.

The Negative

- Timing in recognition of commission. In 4Q22, PropNex made an impairment loss of S$5.5mn on receivables. The net impact on the income statement is offset by S$4.1mn derecognition of trade payable to agents. PropNex makes an impairment of its trade debtors for commissions not paid within 365 days. Two developers hit their 5% marketing fees limit. Both developer projects have been fully sold and the commission will be repaid when the projects reach their temporary occupation permit or completion.

• 3Q22 result was a huge earnings beat. YTD22 revenue and PATMI were 96%/96% of our FY22e forecast (excluding one-offs). We underestimated PropNex’s market share gains especially in private resale, the increase in agent size and rise in selling prices.
• Rental remained the fastest growing category. Revenue jumped 76% YoY to $48mn. The rental market has been extremely tight this year with borders reopening.
• We raise our FY22e PATMI forecast by 34%. Our FY22e target price is raised from S$1.74 to S$2.00. The NEUTRAL recommendation is upgraded to BUY. We expect earnings growth to return in FY23e. New home sales will rebound with the expected 11,300 new launches (FY22: 4,500). Resale recovery will be from widening prices compared to new launches. The upside in volumes will be determined by foreign demand. Rental volumes will be supported by the expected surge of TOP units in FY23.

The Positive

+ Resale bucked the trend. Despite the 28% YoY drop to 3,961 in total private resale volumes in 3Q22, PropNex managed to grow revenue by 11% to S$785mn. Reasons for the market share gains include the growth in the sales force and deliberate efforts to focus on resale. The price difference and lack of available units between new launches and resale helped stimulate resale volumes.

The Negative

- New launches are still a drag. Revenue from project marketing declined 12% YoY to S$88mn. The dearth of new launches and inventory has been a drag to revenue. New units transacted in Singapore (excluding EC) are down 38% to 2,187 units in 3Q22. With a balloting process, market share will also be determined by random chance.

Outlook

After two cooling measures and higher interest rates, we do expect some softening in buying interest from euphoric levels. Nevertheless, we remain upbeat that the key drivers supporting selling prices and demand are intact, namely rising residential population, low unemployment rates, new household formations (e.g. 25k marriages), rising land and construction cost, attractive HDB grants, low inventory level (1.5 years vs 3 year average) and return of foreign buyers. On the transaction volumes, the rebound in new launches for FY23 will support project market sales.

• 1H22 revenue and PATMI were within expectations at 62%/62% of our FY22e forecast. We expect further weakness in earnings, especially from new project revenue.
• Rental was the fastest growing segment in 2Q22, rising 23% YoY, followed by HDB. Project marketing revenue fell 29% YoY due to a decline in new launches.
• We maintain our FY22e forecast. Our expectations are a further decline in earnings in 2H22 due to a lagged revenue recognition from limited project marketing sales in 1H22 of around 1,548 units. New launches planned in 2H22 are expected to pick up to 5,183 units. Rising HDB prices and interest rates may lead to some additional tightening measures. We worry the current TDSR stress test interest rate of 3.5% may be raised. Without a BTO supply lever to dampen prices, other direct intervention by HDB is also possible. Our FY22e target price of S$1.74 and NEUTRAL recommendation is maintained.

The Positive

+ Resilient revenue. Despite the weakness in new launches, other segments of the business managed to grow, less impacted by the December 2021 cooling measure. Rental income jumped 23%, followed by HDB resale.

The Negative

- Sluggish new launch revenue. There were only an estimated 1,548 new residential units launched in 1H22, a  decline of 70% YoY from 5,222 units 1H21. As revenue from new launches are recognised typically six months after completion of the home sale, new launches may recover from a planned 5,183 units earmarked for 2H22.    

Outlook

Property prices will remain elevated. We believe there is a virtuous cycle underway. HDB owners may enjoy gains that are used as equity (est. S$300k) to upgrade into the private residential market. Meanwhile, buyers of HDB resale include private property owners looking to cash out and move into HDB units. Other macro tailwinds include rising income levels, low supply, healthy developer balance sheet and higher priced land bids.

In terms of transaction volumes, new home sales are expected to decline more than expected in 2022, from a decline of 20-30% to 30-40%. No change in PropNex volume expectations for the other segments - private resale (decline 20-25%) and HDB resale (decline 5-10%).

• 4Q21 PATMI almost doubled to S$14m. FY21 revenue was within our estimates but PATMI was 5% below forecast due to lower margins.
• Final dividend was raised 75% YoY to 7 cents. FY21 dividend is up 127% to 12.5 cents.
• After cooling measures announced on 16 December, we expect a sharp 28% decline in FY22e. New home sales will bear the brunt of the weakness. Record low inventory of 14.1k, higher stamp duties and TDSR and a more cautious buyer sentiment will keep transactions subdued. In the last two cooling measures of 2013 and 2018, combined new and resale volumes recovered to new highs only after a two- to three-year period. Our FY22e PATMI is cut by 27% to S$43.5mn. Similarly, our DCF target price is lowered from S$2.08 to S$1.74. We downgrade our ACCUMULATE recommendation to NEUTRAL. Dividends are attractive at 5% for FY22e, as the company undergoes a year of consolidation following record earnings last year.

The Positives

+ Surge in revenue with operating leverage. The highest growth was registered in new home sales (+91% YoY) and resale (+65%). HDB resale was resilient with a 10% improvement in revenue.  PATMI grew at a faster pace despite the increase in headcount due to operating leverage.

+ Jump in cash flow and dividends. The asset-light and highly cash generative business model was reflected in FY21. Operating cash flow in FY21 was S$83mn (FY20: S$42mn), driving up net cash on the balance sheet to S$146mn (FY20: S$106mn). The dividend of 12.5 cents in FY21 represents S$46mn. CAPEX in FY21 was S$0.5mn. Our DPS estimates for FY22 of 9 cents is based on a 77% payout ratio (FY21: 77%).

The Negative

- Nil.

Outlook

We expect a lull in transactions this year following the introduction of more cooling measures, namely the increase in stamp duties by 5% to 10% points and lowering of Total Debt Servicing Ratio (TDSR) from 60% to 55%. Nevertheless, we believe demand is generally healthy, especially for HDB:

• Underlying demand from new household formation: Household formation remain healthy with resident marriages still hovering around 21,000 per annum in 2020.
• HDB upgraders equity: Around 35k HDB units are reaching their five-year minimum occupancy period (MOP) in 2022. Potential gains (or equity for upgrading) from such sales range from S$200k to S$300k.
• Cooling measures mixed impact. The recent round of cooling measures has no impact on first-time home buyers for citizens and permanent residents. However, the lowering of TDSR to 55% will have a more meaningful impact. It was reported that 41% of private housing buyers in 2021 would have TDSR above 55%, HDB is much lower at 3%*.

Private new homes. New homes sales are expected to decline significantly due to the low unsold inventory, particularly in the popular OCR region. OCR inventory is only 3,972. The lowering of TDSR will cap the ability to leverage and turn pricing even more elastic. Another headwind will be the time lag for upgraders to purchase their units. The incremental 5% points of stamp duty to 17% for 2^nd home purchase means an extra S$65-75k** of equity for an upgrader before securing a refund. This implies the upgrader will likely rent premises and collect proceeds before upgrading.

Private resales. The benefit of resale remains the lower price point to new launches. This should allow the decline in volumes to be less dramatic than new launches.

HDB resales. HDB will be the most resilient due to the attractive grants, delay in new units or BTO, healthy household formation and large MOP units available for sale.

Market share gains. An important catalyst to sustain revenue will be to increase PropNex’s market share. Since 2019, the number of agents has increased by around 50% to 11,125. PropNex disclosed that its recent market share for new launches post-cooling measures range from 53% to 57%.

Expectations are for prices to rise. Lower supply from developers, delay in HDB BTO units, rising construction costs and improving economic conditions will keep property prices elevated. PropNex expectations are for private residential home prices to rise 3-5% in 2022 (APAC Realty: +1-3%). HDB resale prices are expected to climb higher by 6-8% (APAC Realty: +4-8%).

Downgrade to NEUTRAL from ACCUMULATE with lower TP of S$1.74 (previous S$2.08)

Our FY22e PATMI is cut by 27% to S$43.5mn. Similarly, our DCF target price is lowered from S$2.08 to S$1.74.  We raised our WACC modestly from 9.8% to 10% due to higher interest rates. Our terminal growth has expanded from 0% to 2% on our expectations of expanding long-term growth in property transactions.

• 3Q21 PATMI spiked 113% YoY to S$16.5mn. 9M21 revenue and PATMI were within expectation at 73%/72% of FY21e forecast.
• The fastest growing segment was private resale, revenue tripled to S$70.6mn.
• The company aims to pay out 75%-80% of FY21 PATMI as dividends. We raise our FY21e DPS by 17% from 11.5 cents to 13.5 cents per share. This implies FY21e dividend yield of 7%.
• Our FY21e forecast and DCF target price (WACC 9.8%) of S$2.08 is unchanged. Our ACCUMULATE recommendation is maintained. PropNex’s revenue run rate is at a new level of around S$200mn per quarter, up from S$100mn 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.

The Positives

+ Broad based growth. The doubling of revenue was supported by growth in all segments. Revenue generated from the private resale and project marketing segments posted the highest YoY growth at 198% and 94% respectively. The buoyant resale market bolstered equity values for HDB owners and investors. HDB volumes were perked up by government grants and delays in BTO construction. Private resale demand was supported by the price differential between new and resale units and rising land and construction costs.

+ Full-year DPS guidance raised. PropNex guided FY21e dividends to be 75% to 80% of PATMI. This compares with the 70% payout in FY20. We raise our FY21e DPS by 17% to 13.5 cents per share, implying final dividends of 8 cents Our forecasted annual dividend payout of around S$50mn is well supported by operating cash-flows. 9M21 FCF was around S$57mn.

+ Net cash bulks up to S$123mn. Net cash stood at a record S$123mn as at Sep21. Cash generated from operations was S$23.9mn during the quarter (3Q20: S$9.6mn). Capital expenditure was a paltry S$25,000. The bulk of the cash generated in the quarter was to pay the interim dividend of S$20.3mn.

The Negative

- Nil.

Outlook

We expect the momentum in real estate transactions to sustain. Key drivers include low interest rates, BTO delays, rising land prices and construction costs and an expanding agency force.

Agency force. PropNex onboarded 2,000 new agents year-to-November, double the 924 new agents in 2020. This brings the number of agents to 10,324, one-third the market share of agents in Singapore. PropNex can tap on the network of the new sales force and enhance their outreach efforts. A large number of agents can further raise the company’s transaction market share.

Private new homes. PropNex raised its 2021 new home sales projection from 11k to 12-13k units. HDB upgraders form less than one-third of demand, with the bulk of the demand coming from upgrading of private property owners and investment-driven purchases. However, depleting developer landbanks may cause transactions to taper down next year to 11-12k units.

Private resales. PropNex raised its resale transactions guidance for the second time to 19k units, up from 16k and 18k previously. Resale prices, which can be 25% lower than new homes prices, are an important driver for demand. The price gap is likely to persist given the rising land prices. The lower price points are more palatable for HDB upgraders who prefer larger units.

HDB resales. FY21 transaction volumes are expected to come in at 30k units, up from 24.7k units in the prior year. Demand is driven by first-time home buyers looking to tap attractive government grants to circumvent BTO delays, as well as HDB owners looking to upsize or downsize their existing units.

New collective sales division. PropNex established this new division in 2021. Collective sales transactions are largely handled by property consultants. PropNex’s advantage is its intimate understanding of the market demand at various locations. This provides developers with the confidence that the en-bloc site can garner demand post redevelopment. So far, two en-bloc projects worth around $42mn have been completed. Another S$3bn of collective sales projects are at various stages of completion.