OCBC Investment Research has initiated coverage on PropNex with a “buy” call and a fair value estimate of S$0.91. He predicts that upcoming project launches in the second half of 2024 and the first half of 2025, as well as a possible increase in sales momentum, could stimulate “positive sentiment” towards the real estate agency’s shares .

“We believe the negative sentiment towards the stock, largely attributed to weak new project launches, will improve,” said Donovan Tan, analyst at OCBC, Monday (October 21).

Noting that PropNex has over the years increased its dividend payout ratio and paid out 92.9 percent of its profits in fiscal 2023, Tan forecasts a dividend payout ratio of 90 percent.

It said this implies an attractive dividend yield of 6.3 per cent and 6.8 per cent for financial years 2024 and 2025, respectively, based on the latest closing price of S$0.79 as of October 18.

“PropNex operates a highly cash-generative business with an asset-light model, enabling it to generate returns for investors through high dividend payouts,” he said.

Recently, the PropNex stock price has been on a downward trend, returning -15.1 percent year-to-date, based on the October 18 closing price. This decline can be attributed to a reduction in new project launches throughout 2023 and 2024, which negatively affected PropNex’s earnings for fiscal 2024, it added.

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OCBC lowered its FY2024 revenue estimate for PropNex by 5.9 per cent, to S$789 million, from S$838.1 million. At the same time, the company increased its revenue estimate for FY2025 to S$826.5 million, an increase of 4.5% from FY2024.

It forecasts PropNex’s earnings per share for fiscal 2024 to decline 14.5 percent to S$0.055, before growing 7.4 percent to S$0.059 in fiscal 2025. This implies a Cash-adjusted price-to-earnings for fiscal 2024 of 13.2 times, the research house said.

Dominant market share

In Tan’s view, PropNex’s sell-off throughout the year could be “overkill” despite the expected decline in profitability in fiscal 2024, given the company’s dominant market share in the residential real estate sector.

PropNex has a local sales force of more than 12,000 agents, representing approximately one-third of all agents in Singapore. This has allowed the real estate agency to establish a dominant position in the real estate market, with a market share 35 percent higher than its nearest competitor.

In Singapore, around two-thirds of property transactions are concluded by PropNex sellers, highlighting the “higher productivity” of its sales team.

This growth is driven by the company’s comprehensive training programs and substantial investments in proprietary technology platforms that can scale with the growing number of sellers, Tan said.

“We hope that this advantage will continue to attract more agents and, therefore, increase the company’s market share in real estate transactions,” he added.

Tan also noted that PropNex’s decline in revenue from the sale of new homes may be partially offset by the strength of the resale market. The Housing and Development Board’s resale of apartments and private properties continued to experience volume and price growth through 2024, with HDB resale volume in Q2 2024 reaching a record high since Q3 2022 .

PropNex shares were flat at S$0.785 as of 1:18 p.m. on Tuesday.