SINGAPORE - PropNex has named a deputy chief executive officer and announced other management changes as part of what the mainboard-listed property agency says is a remaking aimed at helping the company become an even more dominant player in Singapore and the region.

 

The agency, which has over 45 per cent of the Housing Board and private housing launches and resale market in Singapore, unveiled a management restructuring, effective immediately, which sees executive director Kelvin Fong elevated to deputy CEO, effectively becoming the heir apparent to the executive chairman and CEO, Mr Ismail Gafoor.

 

It also said that senior vice-president Eddie Lim has been promoted to chief agency officer. PropNex stalwarts Bobby Sng, Cijay Tew, Marcus Luah, Benjamin Tan and Ken Ng have also been moved up as agency vice-presidents, overseeing key aspects of training and operations.

 

PropNex traces its roots to 1996, when Mr Ismail and his wife Nooraini Noordin set up a property agency called Nooris Consultants. It subsequently merged with Prulink Realty to become PropNex. Over the years, PropNex grew both organically and via mergers, and additions as smaller agencies joined up. One of the biggest was the 2017 merger with Dennis Wee Realty.

 

Today, it is the biggest property agency in Singapore, with a team of about 12,000 agents, almost 40 per cent more than that of its next biggest competitor ERA. It also has about 3,000 agents in Malaysia, Indonesia and other regional markets.

 

Mr Ismail said the current top management changes were part of a strategy to ensure that PropNex would be led by a younger and more energetic team, driven by technology, training and data. It would also support the company&rsquo s strategy to grow the size of its team and market share.

 

&ldquo We are building the systems, structures and processes to ensure that PropNex thrives over the next 10 to 20 years,&rdquo he told The Straits Times. &ldquo We want to grow our team of Singapore agents to 15,000 by 2025 and capture 60 per cent of the market share here while also expanding our overseas presence.&rdquo

 

Despite the changes, Mr Ismail, 60, said he expects to remain at the helm of the company for several more years, helping to steer its growth.

 

The management restructuring also comes as more disruptors enter the market, a point which Mr Ismail acknowledged.

 

He said: &ldquo Indeed, we are seeing many tech-driven property platforms and apps coming into the market in search of a slice of the pie.

 

&ldquo However, the real estate market in Singapore is complex. Big money is involved. Lots of rules. Any wrong move can be costly. So one needs to pick an agency which can provide a full spectrum of services &ndash one which has the technology, data and professional advisory capabilities. Agents must even be able to do financial assessments for clients.&rdquo

 

During an hour-long interview with ST, Mr Ismail also addressed some recent developments in the market.

 

On whether the recent crackdown on money laundering activities by some foreigners has an impact on the property market, especially at the higher end of the spectrum, he said: &ldquo Singapore is an attractive hub for finance, technology, biomedicals and a host of other businesses of the future. As such, its property sector will always be vibrant and attract both local and foreign participants. The rental market reflects this.&rdquo

 

He added: &ldquo And as the economy continues to grow and local wealth continues to build up, Singaporeans themselves will seek bigger and better properties.&rdquo

 

Mr Fong, 48, said that for higher-end properties, the narrowing price gap between resale properties in the Core Central Region (CCR), which covers prime districts 1 to 4, and 9 to 11, and new launches in the outskirts &ndash the Rest of Central Region or RCR and Outside Central Region or OCR &ndash is prompting Singapore buyers to eye prime locations.

 

&ldquo In 2021, CCR properties used to go at around $2,700 per sq ft, while RCR was at about $1,500 psf,&rdquo he said.

 

&ldquo Today, new launches in RCR are being priced at well over $2,000, and at about $2,500 psf. So resale properties in CCR, even at $3,000 psf, are starting to look attractive to Singaporean buyers,&rdquo he added.

 

Mr Ismail in his interview said the changes to the public housing model announced by Prime Minister Lee Hsien Loong at the National Day Rally on Sunday were timely and would ensure more sustainable growth for the property market.

 

&ldquo What this does is make BTO homes in prime locations more affordable to those who previously could not afford them,&rdquo he said. &ldquo This will prevent the building up of elite enclaves within HDB precincts. The intent is to make all public housing affordable to the masses.&rdquo

 

PM Lee said on Sunday that from the second half of 2024, HDB projects would be classified not by mature or non-mature estates, but by location attributes with three categories. Flats in choice locations would get higher subsidies, but also require longer minimum occupation periods of 10 years.

 

PropNex&rsquo s earnings for the January-June 2023 period fell 18 per cent to $22.05 million while revenue dropped 23 per cent to $364.28 million compared with the same period in 2022, but Mr Ismail said the company is seeing strong pick-up in activity going into the second half.

 

He said: &ldquo Yes, the first half was somewhat slow, but the full year is looking good. While I cannot provide too much guidance, I would say the second half will definitely be better for us.&rdquo

Indeed, data suggests that PropNex snagged between 42 per cent and 50 per cent of all agency sales between April and July at new project launches such as Tembusu Grand, Blossoms by the Park, Continuum, The Myst, Lentor Modern and Grand Dunman.

 

One factor which is spurring more buying interest of late is the pullback in interest rates, according to Mr Ismail and Mr Fong.

 

Mr Fong said: &ldquo The two-year fixed rate has fallen to 3.25 per cent, from 4.25 per cent, and this is drawing out buyers. Also, by going for new launches, buyers don&rsquo t have to cough up a lump sum upfront.&rdquo

 

Both PropNex executives believe that as long as the Singapore economy continues to be robust and grow, the demand for housing would remain strong, with Singaporean buyers driving the market.

 

Mr Fong added: &ldquo The aspirational aspect of home purchase is very much intact.&rdquo

 

PropNex, which listed on the Singapore Exchange in July 2018, is known for rewarding shareholders with relatively generous dividend yields of 7 per cent to 9 per cent. The stock closed at 95 cents on Wednesday, prior to the announcement of the senior management changes.

 

Analysts at PhillipCapital and Maybank Securities have lowered their target prices and issued downgrades on PropNex following its earnings of $22.1 million for the 1HFY2023 ended June 30, 18.4% lower than the earnings of $27.0 million in the corresponding period the year before.

 

Maybank Securities&rsquo Eric Ong has reiterated his &ldquo buy&rdquo call with a lower target price of $1.15 from $1.20 previously, noting that PropNex&rsquo s 1HFY2023 results were &ldquo soft&rdquo but &ldquo not totally unexpected&rdquo . On the other hand, PhillipCapital&rsquo s Paul Chew has downgraded his &ldquo buy&rdquo call to &ldquo accumulate&rdquo with a lower target price of $1.16 from $1.20 previous, noting a larger than expected revenue contraction.

 

Ong from Maybank says that the first half of sales for PropNex was slow after two cooling measures which has affected buyer sentiments. For the six-month period, PropNex&rsquo s revenue fell by 23% y-o-y $364.3 million in 1HFY2023 due to decrease in commission income from both agency (-13.3% y-o-y) and project marketing services (-38%).

 

&ldquo Notably, this was mainly attributed to lower number of transactions completed given fewer new launches, especially in 1QFY2023. As a result, 1HFY2023 gross profit margin also narrowed by 0.3 percentage points (ppt) to 9.8% in tandem with changes in sales mix as project marketing (which accounted for 31% of sales in 1HFY2023 vs almost 39% a year ago) typically commands higher margins,&rdquo says Ong.

 

However, the analyst expects PropNex&rsquo s performance to rebound h-o-h, supported by a steady pipeline of new launches in the private homes market.

 

Ong says that the group expects 33 launches with a total of 8,000 units to hit the market in 2H2023. For the full year, about 11,529 new units will be launched, which is more than double the 4,528 units that were launched in 2022.

 

Meanwhile, PropNex also saw decent growth in its network of salespersons to 12,073 (+3.5% year to date), which allows it to continue gaining market share, Ong adds.

 

In addition, the analyst says that PropNex&rsquo s balance sheet is &ldquo rock solid&rdquo , with a net cash of $139.6 million, underpinned by its highly asset-light and scalable business model.

 

&ldquo Interim cash dividend per share (DPS) of 2.5 cents surprised on the upside, representing a dividend payout ratio (DPR) of 84% of its 1HFY2023 net profit (1HFY2022: 2.75 cents after adjusted for the 1-for-1 bonus issue or DPR of 75%).&rdquo says Ong. &ldquo We believe PropNex is increasingly seen as a sustainable yield play given its strong balance sheet.&rdquo

 

In view of the group&rsquo s willingness to reward shareholders with its growing DPR, Ong says that its yield looks sustainable at about 6%, and has therefore reiterated his &ldquo buy&rdquo call.

 

However, he has trimmed his FY2023-FY2025 earnings per share (EPS) by 4%-8% and lowered his target price to $1.15 (based on 15x FY2024 P/E) due to more conservative sales volume and pricing assumptions.

 

Likewise, PhillipCapital&rsquo s Chew notes that PropNex&rsquo s revenue and patmi were 33%/30% of his FY2023 forecast, as adjusted patmi declined 24% y-o-y to $20.8 million, adding that cooling measures and a dearth of new launches pushed revenue lower.

 

Like Ong, Chew expects the new pick-up in launches and market share to drive a stronger 2HFY2023 performance, and notes that PropNex had a generally stable net cash.

 

While PropNex has tempered down its expectations of transactions and prices, Chew anticipates a healthy recovery for 2HFY2023 driven by private residential demand from HDB upgraders.

 

As a result, Chew lowered his FY2023 earnings by 9% to $62.1 million, downgraded his call to &ldquo accumulate&rdquo and reduced the discounted cash flow target price to S$1.16.