PropNex Ltd – Bumper quarter August 16, 2021 184

PSR Recommendation: ACCUMULATE Status: Downgraded
Target Price: 2.080
  • 2Q21 PATMI surged 127% YoY to S$16.5mn. A major beat. 1H21 PATMI at 75% of our forecast. All four revenue streams grew.
  • Private resales stood out with a more than 3-fold jump in revenue. Resale prices more attractive than new-unit prices. Interim DPS up almost 3-fold to 5.5 cents, a 65% payout for 1H21.
  • 2H21 to remain buoyant, underpinned by a virtuous cycle underway. HDB upgraders are pushing up new home sales, driving demand for resale units due to their price differential. Rising affordability forms the foundation of this upcycle. After a decade, the property price index is only up around 13%. Rising income and TDSR should contain speculation.
  • We raise FY21e PATMI by 53% to S$63.5mn as we lift revenue by 77%. DCF target price (WACC 9.8%) rises from S$1.36 to S$2.08. That said, recent rally has priced in most of the positives. Downgrade to ACCUMULATE from BUY.

 

The Positives

+ Resales led growth. Private resales grew the fastest. 2Q21 revenue spiked 228% YoY to S$70mn, supported by a four-fold rise in industry resales to 5,333 units. Last year’s circuit breaker had severely affected volumes. Private residential resales in Singapore are on track to touch their highest in a decade. Attractive prices compared to new-home prices are the main reason.

 

+ Interim DPS raised almost 3x. Interim DPS has been bumped up from 1.5 cents to 5.5 cents, representing a 65% payout. The S$20.3mn payout is well supported by S$33mn of operating cash flows in 1H21. Net cash as at June 2021 was S$120.6mn, up from S$99.7mn in June 2020.

 

+ Attractive operating leverage. PropNex’s operating leverage was in full display in 2Q21. Revenue jumped 147% while operating costs only rose 38% YoY. The bulk of the increase was for variable referral fees and marketing expenses.

 

The Negative

– Nil.

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About the author

Profile photo of Paul Chew

Paul Chew
Head of Research
Phillip Securities Research Pte Ltd

Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.

He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.

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