Delivering a strong FY21
? 4Q/FY21 EPS of 3.86/16.22 Scts, was above our expectations, at 25.9%/107.5% of our FY21F forecast.
? Outperformance underpinned by strong showing across all business segments.
? Upgrade to Add rating with an unchanged TP of S$2.07.
FY21 PATMI was above our expectations
Propnex (PROP) reported a 56.1% yoy surge in 4Q revenue to S$242m, while gross profit rose 68.9% yoy to c.S$26m, thanks to higher agency and project marketing revenue. 4Q PATMI of S$14.3m is 90.5% higher than a year ago, translating into an EPS of 3.86 Scts. FY21 EPS of 16.22 Scts is 109% higher yoy and exceeded our expectations by 7.5%. PROP proposed a final DPS of 7 Scts, bringing its FY21 DPS to 12.5 Scts. Its gross cash balance grew to S$145.6m (39.4 Scts/share) at end-FY21.
Project marketing revenue doubled on strong volume growth
FY21 commissions from project marketing services rose 99% yoy to S$435.5m (4Q: S$109.6m) and accounted for 46% of total revenue. This comes on the back of a 38.4% jump in total new home transaction volume. Looking to FY22F, management expects homes sales to drop by 20-30% yoy due to the impact from the property cooling measures announced in Dec 2021.That said, management indicated that it anticipates selling prices to rise by 3-5% due to limited new launch supply. As at Feb 2022, PROP’s sales force had grown to 11,125 agents, enabling it to garner more market share, in our view.
Agency services benefited from robust private and HDB resale activity
Meanwhile, commission from agency services also surged 78% yoy to S$519.2m in FY21. During the year, private resale volume transactions expanded by 86% yoy to 19,962 units, while HDB resale transactions reached 31,017 units over the same period. PROP expects private resale volume to shrink by 15-20% yoy to 15k-16k in FY22F even as HDB resale transactions are projected to remain stable at 30k for the year. In terms of selling price, management expects HDB resale prices to continue expanding by 6-8% in FY22F. This will continue to underpin the group’s earnings outlook, in our view. PROP has also established a department to strategically grow its business in the Good Class Bungalow (GCB) and landed housing segment.
Upgrade to Add from Hold
While we lower our FY22-23F revenue projections marginally by 0.3-4.8% to take into account the impact of the property cooling measures, our FY22-23F EPS estimates are raised by 13.1-15.7% as we lift our GP assumption to 10.8-11.4%, in line with the level achieved in FY21. Our TP is maintained at S$2.07, based on a blend of net cash-adjusted P/E and DCF valuation. Following the decline in share price, PROP is trading at a cashadjusted FY22F PE of 10x and offers investors attractive potential dividend yield of 6.1%.
Upside risk: stronger-than-projected residential market performance and contributions from enbloc transactions. Downside risk: property cooling measures that could slow market transactions.