PropNex Ltd (SGX: OYY) is the largest real estate brokerage firm Singapore by the number of salespersons. It went public in July 2018 and had since grown its businesses strongly. 

In this article, we will take a look at its operations, earnings, business profile, and growth prospects.  

Business Segments

Propnex operates five business segments namely Agency Services, Project Marketing Services, Administrative Support, Property Management, and Training Services. 

Agency Services group its brokerage services under property sales or lease transactions segment. Project Marketing covers managing and marketing new launches by property developers. The two segments are the largest revenue contributor for PropNex, taking up 95% of total revenue in FY 2020. 

As of end-2018, PropNex has 7,400 sales professionals. The salesforce has grown bigger to 8,324 as of 1 Jan 2020. 

PropNex number of sales representatives. Source: FY2018 Annual Report

PropNex has a presence in Malaysia, Vietnam, and Indonesia. Malaysia’s operations grew from 60 salespersons in 2018 to 500 salespersons today. 

Source: PropNex FY2018 Annual Report

2019 Results Highlights

PropNex reported a good set of results for 2019. For 4Q 2019, revenue increased by close to 60% due to higher income from Project Marketing Services. Gross profit, after taking into account commission paid to salespersons, increased by 92%. 

Such big improvements may not be a usual affair, as the property market in 2018 was impacted by the cooling measures. Full year figures would confirm this notion as the annual revenue is slightly lower than in 2018. 

Source: PropNex 2019 full year results press release

Management has proposed a final and special dividend of 1.5 cents and 0.75 cents per share. The total dividend for FY2019 is 3.5 cents per share.  

Focus on Margin

As the bulk of PropNex costs are in the form of commission paid to its salespersons, it is critical to know the company’s Gross Profit margin trend. A rising or stable margin trend would suggest that PropNex has been efficient in keeping its commission cost in check. 

PropNex has maintained its profit margin in the past five years. Its gross margin of 10.6% in FY2019 was the highest throughout this period. The company has been able to maintain its cost-efficiency well. 

Source: Self-compiled from IPO prospectus and FY2019 financial statements

Balance Sheet Strength

PropNex has a healthy balance sheet. As of end-2019, its cash and equivalent amounted to $81.6 million, a 7.8% increase from end-2018. 

The company does not have any interest-bearing loans. The cash hoard is almost sufficient to pay for its total liabilities of $82.5 million.

A Cash Cow Business

PropNex generated $29.3 million of net cash flow from operations in FY2019. 

Compare this to $5.49 million in FY2015, net cash flow from operations increased by 51% annually. This shows that the company is running a healthy business that churns out regular cash that increases with revenue. 

Source: Self-compiled from IPO prospectus and FY2019 financial statements

Opportunities

The property market has seen a good response from buyers recently. For example, The M Project by Wing Tai sold 70% of its units during the opening weekend. Furthermore, there are 38 new launches lined-up for 2019. PropNex, as the market leader with a 48% share in the new launches market will benefit from the increased buying activities. 

Another area of opportunity is the HDB Resale market. As the government announced a higher income ceiling for HDB resale buyers and enhanced CPF grant, PropNex might see an increase in revenue from this segment too.  

Risks

One key risk of PropNex is that its business is dependent on the availability of housing loans granted by banks. If banks reduce their housing loan exposure locally due to economic slowdown or further property cooling measures, property transactions will take a hit, adversely impacting PropNex’s revenue. 

PropNex is also highly dependent on the competency of its sales force, especially the top salespersons. Should its top-performing salespersons leave PropNex for a competitor or set up his agency, PropNex’s sales will suffer. 

Conclusion

PropNex fundamentals are stable based on its leadership position in the local property market. Should the real estate sector boom, it will see significantly higher revenue. The reverse is true as well. 

We can also be certain that PropNex would likely remain in the business as the government actively maintains a stable real estate market.

At the current price of $0.47, PropNex is trading at an impressive yield of 6.9%. It has a strong balance sheet and healthy operations that generate regular cash flow. For investors who are positive on the long-term future of Singapore real estate sector, PropNex could be a suitable investment 

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