Tracking slower market momentum
- 2Q/1H EPS of 3.54/7.30 Scts deemed in line, at 27%/55.6% of our full-year forecasts
- Higher agency services revenue partly offset lower project marketing contributions
- Reiterate Add, with an unchanged TP of S$2.07
2Q22 results highlights
Propnex (PROP) reported a 11.4% yoy decline in 2Q22 revenue to S$230.7m, while gross profit slipped 15% yoy to S$23.7m, largely on slower project marketing revenue, partly offset by higher agency services revenue. As a result, GP margin slipped marginally to 10.3%. 2Q PATMI of S$13.1m was 20.7% lower than a year ago, translating into an EPS of 3.54 Scts. 1HFY22 PATMI amounted to S$27m, down 13.8% yoy, translating to an EPS of 7.3 Scts. PROP proposed an interim DPS of 5.5 Scts, or an annualised yield of 6.6%. Its gross cash balance stood at S$133.9m (36.2 Scts/share) at end-2Q.
Project marketing revenue impacted by fewer launches
2Q commissions from project marketing services declined 29% yoy to S$89.9m (1H: S$183.4m, -19% yoy) due to fewer project launches while market transaction volumes fell 40.2% yoy in 1H22. For FY22F, management expects homes sales in Singapore to drop 30-40% yoy due to the impact from the property cooling measures announced in Dec 2021 and dwindling unsold inventory. That said, management indicated that it anticipates private home prices in Singapore to rise 7-8% in 2022F due to limited new launch supply. As at Aug 2022, PROP’s sales force had grown to 11,745 agents, enabling it to garner more
market share, in our view.
Agency services benefited from an improvement in market share
Meanwhile, PROP’s commission from agency services rose 4.1% yoy in 2Q to S$139.1m (1H: S$254.7m, +12.3% yoy) as the group continued to expand its market share amid slower market volumes. In 1H, volume transaction in the private resale market fell 21.4% yoy while rental activity declined 8.9% yoy. There was also a 6% drop in Singapore’s HDB resale market transaction volumes. PROP expects the overall private resale volume to shrink 15-20% yoy to 15k-16k in FY22F and projects HDB resale transactions to slide 5- 10% for the year. During the quarter, PROP expanded its footprint to Australia with the establishment of an office in Melbourne. The team has secured a number of collaborations with builders and developers to market locations in both Melbourne CBD and in growth suburbs.
Reiterate Add rating
We keep our FY22-24F net profit estimates unchanged. While PROP has achieved 55.6% of our FY22F net profit forecast in 1H, we believe the slower pace of new launches in 1H and the time lag in profit recognition could be a drag on its performance in 2H22F yoy. Our TP is maintained at S$2.07, based on a blend of net cash-adjusted P/E and DCF valuation. PROP trades at a cash-adjusted FY22F P/E of 10x. Potential re-rating catalysts: stronger-than-projected residential market performance and contributions from enbloc transactions.