Analysts from PhillipCapital, CGS-CIMB and UOB Kay Hian are encouraging investors to accumulate on shares in PropNex after the real estate agency’s earnings for the 3QFY2020 and 9MFY2020 exceeded the expectations of all three brokerages.
PropNex, on Nov 12, posted earnings of $6.8 million for the 3QFY2020 ended September, up 10.6% y-o-y. For the 9MFY2020, PropNex saw earnings surge 82.8% y-o-y to $21.6 million.
For PhillipCapital’s head of research Paul Chew, PropNex’s 9MFY2020 figures formed 111% of his forecast for FY2020e, as he had expected the weakness from 2QFY2020 to spill into the current quarter as “there is usually a lag of two to three months” before revenue is billable.
Despite the lockdown, PropNex’s revenue for new projects was more resilient than expected.
“PropNex was resilient due to market-share gains, delays in prior sales due to options re-issuance and its ability to market projects virtually,” says Chew.
The real estate agency’s operating cash flow for the 9MFY2020 stood at $30 million, compared to the $21 million the year before.
As its capital expenditure (capex) was minimal at $0.2 million, PropNex’s cash buffer should be sufficient to meet Chew’s dividend forecast of $14.8 million, which translates to a distribution of 4 cents per share.
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Chew, who has also identified zero downsides on the stock, foresees recovering resale volumes upon improving consumer sentiment.
“HDB resales should be supported by enhanced grants for HBD purchasers introduced late last year and delays in BTO completions. Meanwhile, project sales could enter a near-term lull in October and November due to delays in new launches,” he says.
“In September, URA had restricted developers from re-issuing options. Potential buyers will likely need greater clarity and time before disposing of their existing properties and committing to new purchases,” he adds.
Chew has thus maintained his “buy” recommendation on the counter, and has raised his target price to 85 cents from 70 cents previously. He has also upped his estimates for FY2020e/FY2021e earnings by 40%/46% to “factor in stronger than expected new-project revenue”.
CGS-CIMB’s Lock Mun Yee has also maintained her “add” call on PropNex with a raised target price of 82.5 cents from 70.8 cents previously, as its earnings per share (EPS) for the 3QFY2020 and 9MFY2020 beat her expectations at 29.8% and 95.4% of her FY2020F forecast respectively.
Lock has also raised her EPS estimates for FY2020 to FY2022 by 18.1% to 21.7% as she ups the overall market transaction volume assumption.
“With its projected higher earnings performance and strong balance sheet, with a gross cash balance of $94.8 million at end 3QFY2020, we believe there could be upside risk to FY20F distribution per share (DPS) (FY19: 3.5 Scts), assuming an unchanged payout ratio of 65%,” she says.
“Key catalysts for PropNex include recovery in the private and public residential markets and a high conversion ratio of purchase options into confirmed sales. Downside risks: protracted recovery of the property market due to the weak macro outlook,” she adds.
For UOB analysts Loke Peihao and Adrian Loh, PropNex’s 9MFY2020 results surpassed expectations, at 100% of their full-year forecasts for FY2020.
As such, they have maintained their “buy” recommendation and raised their target price to 89 cents from 86 cents previously.
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On that, Loke and Loh expects the “strong momentum” to continue into 4QFY2020, “past the October blip”.
“Although Oct 2020 new sales have halved m-o-m according to Real Estate Information System (REALIS) statistics, management opined that the blip was temporarily due to the absence of new launches and clampdown on reissuance of Option-To-Purchase (OTP),” they say.
The analysts have also noted that new sales in June and July were bolstered by pent-up demand following the re-opening after the circuit breaker measures, while August and September’s numbers were buoyed by new launches.
“Management noted that the upcoming line-up of launches, such as Linq @ Beauty World (120 units), The Landmark (396 units), Clavon (640 units) and Ki Residences will boost new sale volumes in 4QFY2020,” they add.
“On the tightened OTP reissuance, management expects buying volumes to slow down during Oct-Nov 20 period but to return thereafter, as buyers eventually adjust to the new norms.”
On that, Loke and Loh have raised their net profit forecast for FY2020 by 31% to take into account higher new sales recognitions from the delayed exercise of OTPs in 2020 as well as $2.3 million in government grants and rental rebates.
The analysts have also raised their earnings forecasts for 2021 and 2022F by 4% and 3% respectively “to better reflect cost savings from the group’s scale advantages”.
Shares in PropNex closed flat at 68 cents on Nov 16.
