In pole position
Ready to scale up; Initiate BUY
We initiate coverage on Propnex with a BUY rating and 12-month TP of SGD1.95, pegged at 14x FY23E P/E, representing about one standard deviation above its historical mean. In our view, the premium valuation to its closest SGX-listed peer, APAC Realty at 10x P/E, is justifiable given its increasing market share and leadership position in Singapore, coupled with a cash generative business model. Backed by its strong balance sheet (with net cash/mkt cap of c.22%), we believe the group can easily sustain its high dividend payout of more than 70%. This would also translate into an attractive prospective yield of around 7.0%.
SG residential property market shows resilience
Despite macro uncertainties and cooling measures in Dec 2021, the local residential market has been more resilient than expected with our assumption of 7% private home price growth this year. While rising interest rates could weigh on sentiment, healthy buying interest from upgraders and first-time buyers will continue to underpin the property market. Developers sold 834 new homes in Jul (+70.9% MoM), boosted by the successful launch of AMO Residence (with take-up of 98.4% at a median price of SGD2,110 psf). Propnex won the biggest market share as its agents accounted for over half of the sales that will be recognised in 2H22.
Strong economic moat with growing salesforce
Propnex continues to see above-industry growth in the number of salespersons to 11,744 as at 1 Aug 2022 (+8.8% YTD). To cement its leadership position, the group aims to have 12,000 strong team by end2022. This means that Propnex will typically be appointed as exclusive or one of the marketing agencies by major developers. It also strategically expanded into the Good Class Bungalow (GCB) space in Jan this year. We expect the group to grow its market share in this niche segment with Singapore becoming a top destination for ultra-high net-worth individuals.
Transforms digital landscape in real estate industry
The group has ventured into the proptech space with the SGD1.0m acquisition of a 70% stake in Ovvy, a technology platform that connects merchants and service providers to consumers. This enables Propnex’s agents to provide value-added services to clients, and improves on sales productivity. In Mar 2022, it also became the first agency in Singapore to set up a full-fledged Chinese language website to expand its reach to Mandarin-speaking locals and foreign investors. Key risks include i) new property cooling measures; ii) sharp interest rate hikes and iii) loss of market share.
