Analysts are positive on PropNex in the new year, and have raised their target prices for the real estate player in their reports on Jan 22.
OCBC Investment Research (OIR) raises its fair value estimate for PropNex to $1.14 from 96 cents after the company’s ongoing success in the Singapore market in 4Q2024 and no immediate property cooling measures signal.
Analyst Donovan Tan keeps his “hold” call on the largest listed real estate agency in Singapore, which he says operates a highly cash-generative business with an asset-light model, allowing it to deliver returns to investors through high dividend payouts.
Tan notes that PropNex recorded the highest number of units sold in a month in November 2024, since March 2013, with 2,560 units sold. This is a sign of the revitalisation of the private housing market and bringing total new home sales for 2024 to 6,560 units, 2.2% y-o-y increase.
Private residential prices grew at a slower pace of 3.9% y-o-y, compared to gains of 8.6% and 6.8% in 2022 and 2023, respectively, indicating a healthy moderation in price growth, the analyst adds.
With about 11,000 new private homes expected in the pipeline and a strong appetite among condo buyers alongside relatively stable prices, Tan says that transaction volumes are anticipated to remain robust in 2025 driving profitability growth for the company.
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On top of that, PropNex’s share price rose by 10.3% since the close on Jan 15, which Tan believes is driven by positive investor sentiment following comments from National Development Minister Desmond Lee, who said to “let the supply and demand side measures work through”.
This indicates that there might not be immediate action on property cooling measures, the analyst notes.
“Furthermore, growth in private property prices is moderating and remains reasonable in relation to overall wealth and income levels. Hence, unless there are unexpected surges in property prices, it is unlikely that additional cooling measures will be implemented in the near term,” says Tan.
Incorporating the 2024 data from the Urban Redevelopment Authority (URA) and the Home Development Board (HDB), OIR has updated its model for FY2025 and increased our free cash flow (FCF) assumptions by 6.5% and 6.6% for FY2025 and FY2026, respectively.
“We also raised our terminal growth rate from 1% to 2% to align more closely with Singapore’s GDP growth. As a result, our fair value estimate has increased from 96 cents to $1.14,” says Tan.
He expects PropNex to continue being a “solid dividend yield play”, with estimates of a dividend payout of 90%, resulting in dividend yields of 5.6% and 6.0% for FY2025 and FY2026, respectively. Additionally, 2025 marks PropNex’s 25th anniversary, which could lead to the potential payment of special dividends this year, Tan says.
Similarly, UOB Kay Hian's Adrian Loh has raised his target price to $1.18 from 98 cents previously, also citing "sequentially strong earnings in 2H2024 into 2026".
Loh notes that PropNex's market share continues to be high at around 50% new launches in the past few months. On top of that, the long waiting periods for build-to-order (BTO) public housing and the inability of the authorities to match supply and demand in the HDB segment has led to buyers opting for reasle units instead.
As such, he raises his earnings estimates for 2025 to 2026 by 2% to 3% on the back of higher transaction amounts for new launches, and slightly higher transaction number for the HDB resale segment.
"We highlight that new launches in the past weekend saw strong sell-through at very robust prices, The Orie sold 86% of the project on its opening weekend at an average price of $2,704 per sq ft (psf) while Bagnall Haus sold 63% at $2,490 psf," says Loh.
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Unlike OIR's Tan, Loh highlights the government implementing new cooling measures as a near term risk which he says has increased. They may take the form of higher seller stamp duties (SSD), extending the number of years that SSG is in effect or tightening the total debt servicing ratio for borrowers.
He keeps his "buy" rating with a higher price to earnings (P/E) ratio-based target price of $1.18 due to his earnings per share (EPS) upgrade and higher PE multiple.
"We have raised our target PE multiple to 14.6 times, which is 1 standard deviation above the company’s average P/E since 2021 and pegged it to our 2025 EPS estimate, as well as including our forecast cash balance as at end-2025. In our view, the company could trade at higher multiples given its asset-light business model, which on our estimate generates an ROE of 37%-38% in 2025-2026. With minimal capex on an annual basis, we forecast that PropNex will generate $60 million to $65 million in free cash flow per year in 2025-2026," Loh ends.
As at 8.56am, shares in PropNex are trading flat at $1.07.
