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Broker's take: UOB Kay Hian initiates coverage on PropNex with 'buy'

UOB Kay Hian has initiated coverage on PropNex with a "buy" call and target price of S$0.65, citing it as a low-risk proxy to Singapore property with its future-proof business model.

PropNex, which stands for Property Network for Excellence, listed on the Singapore Exchange's mainboard on July 2. The largest real estate agency in Singapore by sales force, PropNex employs 7,512 agents or about 25 per cent of agent share as at Sept 10, according to the Council for Estate Agencies.

It also held a dominant share of 43.8 per cent in the residential primary private market in 2017, and 45.8 per cent of the HDB resale market in 2016.

PropNex shares are trading below their initial public offering price of S$0.65. On Tuesday, they closed half a cent or 0.9 per cent lower at S$0.535.

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Analysts Peihao Loke and Andrew Chow said that although recent cooling measures have constrained developers' new-launch pricing and thinned their margins, PropNex's business has been insulated due to higher commissions from developers to incentivise agents, a strong pipeline of mandates till end 2019, and continued resilience in the resale market supported by replacement demand from en bloc projects.

"PropNex offers a more asset-light approach to Singapore property, compared with developers that face huge capital outlays on land bidding and construction, development risks and holding costs," they noted, adding that PropNex has leveraged its strong brand equity to expand regionally.

"PropNex's dual-career path, training culture and marketing platform, as well as competitive compensation, have led to higher rentention and growth of its agent network. In our view, PropNex would be the preferred 'suitor' among smaller agencies as the industry consolidates."