Brokers' take: UOBKH upgrades PropNex to 'buy' as share price declines

UOB Kay Hian (UOBKH) has upgraded its call on PropNex to "buy" with a lower target price of S$1.97, down from S$2.09 previously, as the share price of the real estate agency fell some 14 per cent.

In a research note on Wednesday, the brokerage attributed the fall in share price to profit-taking after a strong performance year-to-date as the stock jumped 116.7 per cent, substantially outperforming the Straits Times Index increase of 10.8 per cent over the same period.

The resultant price-to-earnings (PE)-based target price of S$1.97 by UOBKH is due to the brokerage rolling forward its valuation year to 2022, as compared to the previous aggregate of 2021 and 2022.

"UOBKH elected to lower its target PE multiple from 12.5 to 11.1 times, with the latter being 1.5 standard deviation points above the company's historical average of 6.6 times (and the former being two standard deviation points higher). We believe that the lower PE multiple is reasonable as it takes into account the potential earnings decline that we have factored in for 2022," said analyst Adrian Loh.

UOBKH upgraded PropNex earnings estimates by 10 per cent, 13 per cent and 7 per cent for 2021, 2022 and 2023 respectively. These upgrades stem from the greater confidence in the Singapore property market overall with slightly higher volume assumptions for private and HDB sales, as well as a moderate increase in profit margins for PropNex's main business segments, he added.

Dividends for PropNex will be well supported with a payout ratio of 70 per cent of earnings from 2021 to 2023, in the analyst's views. This translates to a full-year distribution per share of 12 cents per share.

While 2021 "could be the peak" in the company's earnings, Mr Loh still believes that there is an upside in share price as PropNex is trading at an "undemanding" 2022 PE multiple of 11.8 times, and 6.9 times of EV/EBITDA (enterprise value/earnings before interest, tax, depreciation and amortisation), which translates to a prospective yield of 6.5 per cent.

During PropNex H1 2021 results release, the real estate agency disclosed its new en bloc sales team which had garnered S$4.4 billion worth of projects. A high level of conversion in these deals could underpin the company's earnings growth in the next 12 to 18 months, the brokerage pointed out.

Said Mr Loh: " For its (PropNex) upcoming Q3 of 2021 business update, we expect the company to report continued strong transaction volumes from all of its business segments. Given the time lag between property transactions and actual recognition of revenues and profits, we expect PropNex to continue generating strong results into at least Q1 of 2022."

Separately, the analyst does not expect cooling measures in the near term owing to the total debt-servicing ratio which has already suppressed a significant amount of residential property market speculation in Singapore. In the short term, the continued bullish newsflow on transaction volumes, en blocs or property pricing could be share price catalysts, he noted.

The report also said that the "Singapore property market has maintained its robustness" in Q3 of 2021, and that the resale market is on track to break the record volume in a decade.

Read more:

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