PropNex is expected to record strong FY2025 earnings backed by surging new home sales, according to RHB Bank Singapore analyst Vijay Natarajan in an unrated report.
He notes that recent mega new launches in November saw strong demand, exceeding market expectations. This is likely to push new home sales for November to above 2,200 units, which would be the highest level since 2013.
Earnings commissions from November will likely be recognised next year, as there is typically a two to six months lag in sales recognition, Natarajan points out. Additionally, the expected launch of about 15,000 units next year is double that of the estimated about 7,500 units this year.
“With sales momentum likely to continue, driven by pent-up demand, moderation of mortgage rate packages from rate cuts and continued strong economic growth, we expect new home sales to be over 50% higher y-o-y in 2025 at 9,500-10,500 units.
“As this segment is a key earnings growth driver for PropNex, this should boost its net profit. We also expect resale transactions to rise 10%-15% next year on the back of a spillover effect from new launches,” he adds.
The new launch segment has higher gross margins — typically in the teens and double that of the resale segment — where margins are in high single digits, RHB highlights.
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PropNex is also sitting on a cash pile of $116 million with no debt and minimal capital expenditure requirements. The company has been paying 70%-93% of its earnings as dividends since its IPO, offering a highly attractive dividend yield of about 7%.
To this end, Natarajan notes that the company has alluded to the possibility of paying special dividends next year, on its 25th anniversary. “Other options for cash include potential asset acquisitions or mergers and acquisition opportunities in Singapore and overseas,” he says, adding that the company is not in a rush to deploy its cash.
For FY2024, Natarajan thinks that the company will record soft earnings due to low transaction volumes. However, he reiterates that PropNex should stage a strong recovery in FY2025.
As at 9.45am, shares in PropNex are trading at an unchanged 91.5 cents.
