Analysts from CGS-CIMB Research and PhillipCapital have maintained their respective &ldquo add&rdquo and &ldquo buy&rdquo calls for PropNex with increased target prices after the company&rsquo s 4QFY2020 results beat expectations.

 

PropNex reported an 18.8% y-o-y increase in revenue to $155.6 million driven by better-than-expected HDB and private resales. However, earnings decreased by 8.9% y-o-y to $7.5 million due to lower margins of 10% (11.4% in 4QFY2019) attributable to product mix and share of loss from associates of $0.7 million.

 

However, CGS-CIMB analyst Lock Mun Yee notes that PropNex ended FY2020 on a high note, with full-year revenue and earnings up 22.8% and 45.2% y-o-y respectively, thanks to the stronger resale market.

 

&ldquo The private resale market saw a 19.9% increase in transaction volume in 2020 while transaction value rose 24.3%. The HDB resale market also recorded a 4.3%/16.6% rise in overall transaction volume/value in 2020,&rdquo she writes.

 

Lock also positively views PropNex&rsquo s gain in market share for project marketing. For FY2020, the company reported a 62.1% jump in commissions from project marketing services to $218.7 million on the back of higher transaction volume market share (48.8%). 

 

Looking ahead, Lock expects the strong volume momentum in private resale transactions to continue propelling PropNex&rsquo s performance for FY2021. With its enlarged agent base of 9,119 as of February 2021 and consumer-centric initiatives, she believes the company is well-positioned to continue capturing market share.

 

&ldquo PropNex&rsquo s strategy of attracting potential buyers through consumer events and providing value-add and consumer education tools such as Monopoly PropNex Edition should enable it to continue to gain market share traction, in our view,&rdquo she writes.

Lock has raised her target price to 88.8 cents from 82.5 cents previously to account for higher private resale assumptions, with FY2021-2022 forecasted earnings per share (EPS) raised by 6.7-14.5%.

 

&ldquo Given its projected higher earnings performance and strong balance sheet, we believe PropNex would maintain a high dividend payout ratio for FY2021 (FY2020: 71%),&rdquo she adds.

 

For PhillipCapital analyst Paul Chew, the better resale market outlook also underpinned his revised DCF-based target price of $1.00 (up from 85 cents previously). His FY2021 earnings estimates increased by 11% to $30.8 million, with a lower weighted average cost of capital (WACC)   of 9.8% applied on account of a lower beta observed.

He also notes that PropNex is in a healthier cash position, which helped the company declare higher dividends for FY2020. 

 

&ldquo FY2020 operating cash flows were $42 million vs. meagre capex of $0.5 million. Large cash inflows bulked up its net cash from $81 million to $105 million. Full-year dividend jumped 57% to 5.5 cents. A $20.3 million payout is comfortably supported by operating cash flows and cash hoard on its balance sheet,&rdquo he writes.

 

His current target price of $1.00 assumes yields of 6.8% backed by $105 million net cash, 33% ROEs and an estimated 53% share of residential property transactions.

Chew predicts a healthier property market going into 2021 led by resales, continuing the recovery trend in 2020. 

 

&ldquo HDB volumes were helped by government grants, delays in BTO units and a surge in units reaching their minimum occupation period. HDB resale revenue touched a record high. Private residential resales were buoyed by their large price discounts to newly launched units,&rdquo he writes.