+ Minimal capex and working capital. Net cash jumped to a record S$99.7mn due to the S$20.4mn generated in 1H20 and a delay in final and special dividend of S$8.3mn (or 2.25 cents). Worth noting that despite the 45% revenue jump in 1H20 to S$241mn, additional working capital required to support the growth was only S$300k and capital expenditure of S$110k.
+ Project marketing the revenue and margin driver. Revenue from project marketing jumped 148% YoY to S$49.2mn. Gross margins improve as new launches provide a higher share of commission for PROP.
+ Interim dividend raised by 20%. In-line with the jump in profits, PROP raised dividends by 20% to 1.5 cents. This interim payout of S$5.6mn is well supported by the 1H20 FCF of S$20.4mn.
– Higher staff cost. Staff cost rose 34% due to higher provision of bonus and salary base. The increase in staff cost inline with gross profits means a loss in operating leverage, unlike the 1Q20. Unclear the split between the variable and fixed components of staff cost.
The following are some of the outlook bullet points by segment:
In 2Q20, transaction collapsed (Figure 1) as property viewing was restricted and showrooms closed. This will negatively impact PROP 3Q20 results. Nevertheless, we believe a bottom has formed and volumes will start to recover. July has seen private resale doubled to 928 units from prior month 383. New units sales are performing even better at 1,123 units in July and 992 units in June. August appears on track to reach the 1,000 units. Private resale transactions for August seem to be decelerating. PROP managed to capture 53% market share of new private units sold in 2Q20.
Maintain BUY with a higher target price of S$0.70 (previously S$0.60)
We are raising our target price as we increased our terminal growth rate assumption. With the lockdown restrictions being lifted in Singapore, a recovery in volumes is underway. PROP has a high cash generative asset-light business model with minimal capital expenditure and working capital required. The company is committed to paying attractive and sustainable dividends. The current 7% dividend yield amounts to S$14.8mn payout. This compares to their FCF that averaged S$23mn over the past three years. There is also the added buffer of S$99.7mn net cash on the balance sheet.