Brokers' take: Analysts remain optimistic of PropNex after its Q3 results

Published Thu, Nov 11, 2021 · 08:01 AM

ANALYSTS are positive on the prospects of PropNex OYY on the back of the real estate agency's Q3 2021 financial results, as well as the strong momentum in the Singapore property market.

In research notes on Thursday (Nov 11), UOB Kay Hian (UOBKH) raised its target price on the counter to S$2.17 from S$1.97, while DBS Group Research raised its target price slightly to S$1.84 from S$1.83. UOBKH maintained its "buy" call and DBS maintained its "hold" call.

In a report on Wednesday (Nov 10), CGS-CIMB maintained its "hold" call with an unchanged target price of S$2.07.

UOBKH's analyst Adrian Loh highlighted that the upgraded target price and "buy" call are due to greater confidence in PropNex's prospects in 2022, barring any economic downturn.

Loh said that PropNex's net profit for the first 9 months of the financial year accounted for 77 per cent of the brokerage's full-year 2021 forecasts, which is deemed to be largely in line with their expectations.

"Our new target price-to-earnings ratio multiple of 12.6 times is 2 standard deviation points above the company's historical price-to-earnings average of 6.8 times. Given the company's huge cash pile of S$123.7 million as at end-Q3, 2021, equating to S$0.33 per share, we note that its ex-cash price-to-earnings is only 8.6 times," added Loh.

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During an analyst call, PropNex's management indicated a higher payout for its final dividend, stating that it "aims to pay out 75-80 per cent of its 2021 profits to shareholders".

UOBKH's estimate for PropNex's final dividend payout is at a "reasonably conservative" level of 70 per cent of its 2021 profits.

DBS said that its "hold" recommendation was based on the stock's rich valuation.

"Our target price is based on 12 times the FY2022 price-to-earnings, which 1.7 standard deviation points above its historical mean, reflecting the strong momentum in the property market," said DBS.

CGS-CIMB analyst Lock Mun Yee said that her "hold" rating is retained on limited near-term share price upside, although the brokerage believes that PropNex's attractive projected dividend yield of 6.3 per cent, assuming a higher payout ratio of 80 per cent, would be supportive of its share price.

"We tweak our FY2021 to FY2023 earnings per share estimates up by 5.1 to 6.7 per cent post results. Our target price is maintained at S$2.07, based on an unchanged blend of net cash-adjusted price-to-earnings and discounted cash flow valuation, as we roll our assumptions forward," said Lock.

DBS views that earnings per share could "taper sideways", and that the PropNex stock is at risk of de-rating if property cooling measures are announced.

Lock also noted that property cooling measures are a potential risk that could slow down market transactions for PropNex.

"We believe that PropNex's growth potential may be held back by lower volumes of new launches sold in the next few years. This is based on depleting inventory of unsold new launches as well as construction delays," said DBS.

Forty per cent of the inventory of new launches are in the core central region, which are priced higher and have less demand, DBS added.

UOBKH's Loh, however, believes that PropNex's S$4.4 billion worth of en bloc projects at hand could add S$13 million to S$18 million to the company's earnings over the next 12 to 18 months, assuming a 0.3 to 0.4 per cent commission.

The gestation period for en bloc projects may not result in all the earnings accruing in 2022, added Loh.

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