PropNex is expected to record strong FY2025 earnings backed by surging new home sales, according to RHB Bank Singapore analyst Vijay Natarajan in an unrated report.

 

He notes that recent mega new launches in November saw strong demand, exceeding market expectations. This is likely to push new home sales for November to above 2,200 units, which would be the highest level since 2013.

 

Earnings commissions from November will likely be recognised next year, as there is typically a two to six months lag in sales recognition, Natarajan points out. Additionally, the expected launch of about 15,000 units next year is double that of the estimated about 7,500 units this year. 

 

&ldquo With sales momentum likely to continue, driven by pent-up demand, moderation of mortgage rate packages from rate cuts and continued strong economic growth, we expect new home sales to be over 50% higher y-o-y in 2025 at 9,500-10,500 units. 

 

&ldquo As this segment is a key earnings growth driver for PropNex, this should boost its net profit. We also expect resale transactions to rise 10%-15% next year on the back of a spillover effect from new launches,&rdquo he adds.

 

The new launch segment has higher gross margins &mdash typically in the teens and double that of the resale segment &mdash where margins are in high single digits, RHB highlights.

 

PropNex is also sitting on a cash pile of $116 million with no debt and minimal capital expenditure requirements. The company has been paying 70%-93% of its earnings as dividends since its IPO, offering a highly attractive dividend yield of about 7%. 

 

To this end, Natarajan notes that the company has alluded to the possibility of paying special dividends next year, on its 25th anniversary. &ldquo Other options for cash include potential asset acquisitions or mergers and acquisition opportunities in Singapore and overseas,&rdquo he says, adding that the company is not in a rush to deploy its cash. 

 

For FY2024, Natarajan thinks that the company will record soft earnings due to low transaction volumes. However, he reiterates that PropNex should stage a strong recovery in FY2025. 

OCBC Investment Research analyst Donovan Tan has initiated coverage on PropNex with a &ldquo buy&rdquo call on Oct 21.

 

PropNex is Singapore&rsquo 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.

 

&ldquo 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,&rdquo he adds.

 

As such, the analyst expects PropNex&rsquo 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&rsquo s highly cash-generative business and asset-light model, which allows the company to deliver &ldquo solid&rdquo dividend returns to its investors. Based on PropNex&rsquo s closing price of 79 cents as of Oct 18, PropNex has a dividend yield of 6.3% based on Tan&rsquo 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.

 

&ldquo 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,&rdquo he writes.

 

&ldquo 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,&rdquo 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.

 

With this, Tan has given PropNex a fair value estimate &ndash or target price &ndash 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&rsquo s FY2025 EPS is, however, expected to grow by 7.4% to 5.9 cents.

The board proposes an interim dividend of S$0.0225 per share

 

REAL estate agency PropNex&rsquo s net profit for the first half of the fiscal year fell 13.8 per cent to S$19 million from S$22.1 million the year before.

 

Its earnings per share for the period correspondingly declined the same in terms of percentage to S$0.0257, versus S$0.0298 in H1 FY2023.

 

PropNex&rsquo s board proposed an interim dividend of S$0.0225 per share, which is lower than the S$0.025 per-share dividend for the prior year.

 

It reflects a payout ratio of 87.6 per cent of the group&rsquo s latest net attributable profit, said the group on Tuesday (Aug 13).

 

The company&rsquo s net profit decline comes as revenue slipped 5.1 per cent amid lower commission income from project marketing services, which fell 19.6 per cent to S$91.3 million from S$113.5 million in H1 FY2023.

 

PropNex said this drop reflected the reduced number of private new home sales amid fewer launches in the primary market.

 

The impact of property cooling measures also contributed to &ldquo restrained activities&rdquo in the market for H1, said executive chairman and chief executive officer Ismail Gafoor.

 

In contrast, the group noted strength in the secondary market as commission income from real estate agency services increased 1.3 per cent to S$251.9 million in the first half under review.

 

PropNex also highlighted a &ldquo significant&rdquo 41.4 per cent quarter-on-quarter increase to 3,802 transactions excluding executive condominiums in Q2, mainly due to limited new project launches and a &ldquo substantial price gap&rdquo between private new and resale homes.

 

&ldquo PropNex remains cautiously optimistic about the private residential property outlook for 2024 given the new supply slated to enter the market,&rdquo said Gafoor.

 

&ldquo Moreover, stabilising home prices, possible pent-up demand, and a potential easing of borrowing costs from Federal Reserve rate cuts could bode well for the residential market as home choices and affordability for buyers improve,&rdquo he added. 

PropNex, the largest property agency here, has reported " modest" earnings of $47.8 million for FY2023, down 23.3% y-o-y. Revenue in the same period was down 18.6% to $838.1 million, amid a cooler buying sentiment and transaction volumes.

 

The company plans to pay a final dividend of 3.5 cents, bringing the full-year payout to 6 cents, representing a payout ratio of 92.9%.

 

PropNex did better in the more recent 2HFY2023, with earnings of $25.7 million versus $22.1 million recorded in 1HFY2023.

 

PropNex' s executive chairman and CEO Ismail Gafoor describes a tougher environment no thanks to the combination of higher rates, cooling measures and macroeconomic uncertainties.

 

" This subdued demand was reflected by new private home sales falling to a 15-year low in 2023 even though substantially more units were launched.

 

" I believe our FY2023 performance was resilient in this context," he adds.

 

According to PropNex, it captured an overall 62.5% share of the private new launches, private resale and HDB resale segments.

 

" This achievement was underpinned by the size and productivity of our sales force, the largest in Singapore, and our fortified leadership team,&rdquo he adds.