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PropNex powers on with an eye on growth
DESPITE his company's share price sliding 21 per cent from its opening price on July 2, PropNex's executive chairman and chief executive Ismail Gafoor considers himself blessed.
His initial public offering (IPO) launch date turned out to be just days before the government announced cooling measures to tame the private housing market.
This invited stabilising action by UOB Kay Hian on July 6 and 9, involving 8,500,000 shares between S$0.56 and S$0.635.
He says he is thankful for the timing. "If we had delayed by just four days ... nobody would have bought it, and we might have had to wait for another three or four years."
He is unruffled by the slide in the company's share price, which closed on Friday at S$0.54, down from the IPO price of S$0.65 and the opening price of S$0.685.
"I'm never worried about share prices coming down. Obviously, if it continues to go down, I'll probably buy back everything," he says.
Mr Ismail himself has dipped into the market multiple times since July 10 to buy up shares at prices ranging from around S$0.58 to S$0.53 and now holds over 5.8 million shares through his own brokerage account, according to Singapore Exchange disclosures.
Those shareholdings are outside of his 62 per cent interest in P&N Holdings, which controls PropNex.
Mr Ismail says he is confident in his real estate agency - Singapore's largest by number of salespersons - and its asset-light business model and high free-cash flow, which leads to high dividends.
The company said in its prospectus it will distribute dividends of at least 50 per cent of its net profit for 2018 and 2019.
"Where else can I put the money and get back that kind of return?" he says.
This year, PropNex's ranks swelled by more than 900 agents to reach over 7,600 compared to the start of the year. This was after it leapfrogged rival ERA Realty's pole position last year through a business takeover of Dennis Wee Group.
The newly-acquired headcount has helped bump up PropNex's financial results. Net profit in its third quarter jumped 41.6 per cent to S$7.2 million, as revenues rose 26 per cent to S$124 million.
As for the impact of the cooling measures on PropNex, Mr Ismail says "the pie will become smaller", resulting in some agent attrition.
But Mr Ismail, characteristically bullish, reckons a few factors could soften the blow of cooling measures to his financials.
Forty per cent of his topline in the first half of the year came from landed homes, leasing and public housing, and he believes those markets will likely not be affected by cooling measures.
The remaining 60 per cent comprise project launches and private residential resales. He expects the en bloc boom to boost demand for resale units, and to capitalise on his large agent footprint to market projects.
"The fact that there are so many new launches being lined up, even though the volume may not be as high as before ... I think we will be able to capture a share," he says.
He thinks that some recent projects that are priced competitively represent a chance to buy at a relatively good price, given that leading up to July, developers were buying land at higher prices in hopes of "forward pricing" at higher levels.
"I see a silver lining now because it's a buyers' market. Developers are trying to entice the buyer with a low profit margin and therefore there is a window of opportunity. Will this remain for long? I dont think so."
This year and as at Nov 13, PropNex has been involved in 29 project launches and has been appointed for another 24 new projects.
The company, which began consumer seminars in 2013, will also hold such events focused on the implications of the cooling measures for investors in the months ahead.
Competition for business and salespeople among agencies has only become fiercer due to the high-volume, low-margin business model. ERA Realty recently added 500 agents through two strategic collaborations with other agencies, bringing its headcount to over 6,500.
In this environment, PropNex attributes the draw of its agency to factors such as its training and large size.
"It's all about training, training, training so our salespeople stay relevant in the market," he declares, though he did not reveal how much the company spends on training. Topics include teaching agents "asset reorganisation", such as the implications of a client owning a second property.
Programmes include four conventions in a year and a three-day, 15-hour a day salesperson bootcamp that started in 2015, which aims to drive home their "role, purpose and mission".
"The proof is in the pudding as you can see how they have gained momentum in new launches. That seems to show how the training programmes are effective," RHB's analyst Vijay Natarajan told The Business Times. RHB does not cover PropNex's stock, though Mr Natarajan follows the agency business and covers APAC Realty.
Mr Ismail also says the company's scale allows it to implement IT systems like a co-broker app, and a central system that notifies agents when a transaction has been made in real-time.
New initiatives are afoot to grow the business beyond real estate brokerage. PropNex began an auction business this year.
Starting from last year, Mr Ismail has also been growing his empire further afield, in the hope of making PropNex a strong regional brand in five years.
Currently, it has close to 1,000 salespersons across 19 offices in Indonesia, about 200 salespersons in Malaysia across two offices, and 100 salespersons at its Ho Chi Minh City's office, though he says the "vast majority" of his revenue still comes from Singapore.
For each of these countries, there is a "clear KPI" that in three years of operation, they must create a strong market presence, and in five years, must be among the top five in their respective country.
He wants these agents to be aligned deeply with the PropNex brand - overseas salespeople are to travel to Singapore for salespeople bootcamps as well.
"Our current focus is Asean, will it contribute more? Yes, but will it be a huge percentage to our bottom line in our next five years? May not. It will take some time for us to grow some business," Mr Ismail says.