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Property Market Remains Robust; Upgrade To BUY

With a 14% retracement in Propnex’s share price since its 1H21 results, we believe the company’s fundamentals, valuation multiples and net cash position now warrant a more bullish stance. The Singapore property market remains robust and we believe the company’s 3Q21 business update will be a strong one. In the next 6-12 months, earnings surprises could come from successful en bloc projects. Upgrade to BUY. Target price: S$1.97 (previously $2.09).

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WHAT’S NEW

• Upgrade to BUY. We upgrade Propnex to BUY with an updated target price of S$1.97 (-6% from S$2.09 previously). Post its strong 1H21 results which were reported on 11 Aug 21, Propnex’s share price has declined 14%. We attribute this to profit-taking after a strong share price performance ytd, with the stock having risen 116.7% and substantially outperforming the STI’s increase of 10.8% over the same period. Fundamentally, we believe that the company continues to fire on all cylinders given that the Singapore property market has maintained its robustness in 3Q21, but not enough to warrant the government
implementing cooling measures, in our view.

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• While 2021 could be the peak in the company’s earnings, we believe there is upside in its share price as Propnex is trading at an undemanding 2022F PE of 11.8x, EV/EBITDA of 6.9x and with a prospective yield of 6.5%. In the short term, continued bullish newsflow on transaction volumes, en blocs or property pricing could be share price catalysts.

• We highlight that there is still a lot to like about Propnex. In 1H21, its ROE nearly doubled to 16.3% vs 8.6% in 1H20 while remaining in a net cash position to the tune of S$120.7m (or S$0.33 per share) as at end-1H21. In addition, the company generated S$19.2m in free cash flow in 1H21 which was a 59% yoy increase from the S$12.1m generated in the year-ago period.

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• 3Q21 business update should be strong. For its upcoming 3Q21 business update, we expect the company to report continued strong transaction volumes from all of its business segments. Given the time lag between property transactions and actual recognition of revenues and profits, we expect Propnex to continue generating strong results into at least 1Q22. Note that as of 1H21, the company has moved to half yearly reporting of its financial results.