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Raising dividend payout ratio

  • 3Q/9M EPS of 3.89/12.36 Scts is 27.4%/87.1% of our FY21F forecast.
  • Buoyant primary and resale markets boost earnings, lifting FY21F dividend payout ratio to 75-80%.
  • Reiterate Hold rating, with an unchanged TP of S$2.07.

3Q21 results highlights

Propnex (PROP) reported a 98.8% yoy surge in 3Q revenue to S$234.4m, while gross profit rose 89.3% yoy to S$24.7m, thanks to higher agency and project marketing revenue. 3Q PATMI of S$14.4m is 113.2% higher than a year ago, translating into an EPS of 3.89 Scts. 9M21 EPS of 12.36 Scts is 111.9% higher yoy and made up 87.1% of our FY21F forecast. PROP indicated that it aims to pay out 75-80% of its FY21F profits as dividends, higher than the 70% payout ratio in FY20. Its gross cash balances grew to
S$123.7m (33.4 Scts/share) at end-3Q21.

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Stronger yoy showing from primary market transactions

3Q commissions from project marketing services rose 94% yoy to S$100.8m (-20% qoq, marginally higher than 1Q21’s), to reach S$325.9m for 9MFY21. Total new home transaction volume doubled to 10,009 units for 9M. Looking ahead, PROP expects the
real estate market to remain resilient for the rest of the year and believes new home sales volume could reach up to 13k units for 2021F. As at end-3Q21, PROP had been appointed as the project marketing agency for 115 ongoing projects that are in various
stages of sales, with another 25 new launches slated to be rolled out in 2022F. According to PROP, its sales force had grown to 10,324 agents as of 4 Nov 2021. This would continue to underpin its market share and sales activity.

Active resale market boosts agency services commissions

Meanwhile, commission from agency services also doubled yoy to S$132m in 3Q (relatively steady vs. 2Q21). Private resale volume transactions had expanded by 142% yoy to 15,214 units for 9M21, while HDB resale transactions reached 10,009 units over the same period. PROP expects the strong momentum in the private resale segment to continue and reach 18k units for FY21F. This will continue to underpin the group’s earnings outlook, in our view. In addition, PROP has established an enbloc department to tap the growing collective sales market, given the dwindling new supply situation. To date, it had concluded two collective sales transactions valued at S$42.2m and is conducting the tender for the S$640m Lakepoint Condominium enbloc, scheduled to close in Dec 2021. As this segment gathers more activity momentum, we believe it could provide another source of income for the group. We have not factored in any contributions from the latter into our forecasts.

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Reiterate Hold rating

We tweak our FY21-23F EPS estimates up by 5.1-6.7% post results. Our TP is maintained at S$2.07, based on an unchanged blend of net cash-adjusted P/E and DCF valuation, as we roll our assumptions forward. Our Hold rating is retained on limited nearterm
share price upside, although we believe its attractive projected dividend yield of 6.3% (assuming higher payout ratio of 80%) would be supportive of its share price. Upside risk: stronger-than-projected residential market performance and contributions
from enbloc transactions. Downside risk: property cooling measures that could slow market transactions.