• Proxy to resurgent residential transactions. PropNex is the largest Singapore-listed real estate agency with an undemanding c.60% market share of overall residential transaction volumes. It has steadily gained market share over the years by increasing its number of agents, raising productivity, and branching out into other segments such as commercial & industrial and overseas markets via franchise agreements. PropNex is an asset-light cash- generating business with superior ROE of >30% and c.7% dividend yields. It is in a net cash position with cash accounting for c.18% of its market cap.

• Expecting strong 2025 earnings backed by surging new home sales. Recent mega new launches in November saw strong demand, exceeding market expectations, and is likely to push new home sales (Nov 2024) to >2,200 units, which would be the highest level since 2013. Earnings commissions from Nov 2024 will likely be recognised next year, as there is typically a 2-6 month lag in sales recognition. Additionally, the expected launch of c.15,000 units next year is double that of the estimated c.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 >50% higher YoY 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 spill over effect from new launches.

• 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.

• Sitting on a cash pile of SGD116m with no debt and minimal capex requirements. PropNex has been paying 70-93% of its earnings as dividends since its IPO, offering a highly attractive dividend yield of c.7%. Management also alluded to the possibility of paying special dividends next year, on its 25th anniversary. Other options for cash include potential asset acquisitions or M&A opportunities in Singapore and overseas. Management, however, is not in a rush to deploy and is waiting for compelling opportunities aligned with its goals as it currently enjoys a healthy interest income on its cash.

• Trading at ex-cash FY23 P/E of c.11x. Earnings are likely to be soft in FY24 due to low transaction volumes, but should stage a strong recovery in FY25, based on the abovementioned thesis. During market upcycles, we believe real estate agencies have room to trade at mid-high teen P/E multiples.

• Key risks: Implementation of additional property cooling measures, rebound in interest rates, and Singapore’s economic growth faltering.

Source: RHB Securities Research - 9 Dec 2024