Brokers' take: UOBKH downgrades PropNex to 'hold' on worries 2021 could mark earnings peak

UOB Kay Hian (UOBKH) has downgraded its call on PropNex OYY to "hold" from "buy" with a higher target price of S$2.09 versus S$1.34 previously, after the real estate agency on Wednesday posted a strong set of H1 FY2021 results which exceeded expectations.

In a report on Thursday, analyst Adrian Loh said the downgrade comes in view of PropNex's strong share price performance in the year to date.

While he believes continued bullish industry news flow may support PropNex's share price in the short term, such strength will be "difficult to sustain" in Q4 of FY2021 as well as throughout FY2022, in his view.

"Given the strong transaction volumes seen across all its business segments in H1 FY2021 as well as the new and potentially lucrative en bloc team that is now in place, we worry that 2021 may be the peak earnings year for PropNex," he explained.

Following PropNex's latest declared interim dividend of 5.5 Singapore cents, which formed 58 per cent of UOBKH's prior full-year estimate of 9.5 cents, the research house has upgraded its FY2021 dividend per share estimate to 11 cents.

It has raised FY2021 to FY2023 earnings estimates by 6 to 17 per cent, with the largest changes expected in the first financial year due to stronger-than-expected transaction volumes across the board.

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"We have also conservatively factored in a 50 per cent success rate for its S$4.4 billion worth of en bloc projects which translate to a revenue uplift of S$1.4 million and S$4.1 million for 2021 and 2022 respectively," said Mr Loh.

Noting declining inventory of unsold private homes over the past two years, he is positive that the "en bloc fever" in Singapore will resume, presenting upside to PropNex's earnings in the next 12 to 18 months.

"Our target price-to-earnings (P/E) multiple of 12.5 times is two standard deviation points above the company's historical average of 6.6 times. We have chosen not to lower our target P/E multiple given various issues that could still lend support to its share price," said the analyst of current valuations.

As at 11.17am on Thursday, shares of PropNex were trading S$0.03 or 1.5 per cent higher at S$1.99.

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