Ever since I started dividend investing, I paid less attention to smaller stocks. But the force is big on PropNex. How big?
PropNex shares have had an impressive rally. Shares have more than doubled in just less than a year, hitting ~S$2.00 per share – a record price.
The last time its shares hit a peak was in 2023.
Now, I need to make it clear that I don’t own PropNex. But if it were me, would I sell its shares at market highs? Or is this worth buying now?
Let’s appraise the horseflesh.
PropNex’s latest 1H2025 results were impressive
Revenues were strong, net profits were up. This was significantly boosted by commission income from both its project marketing services and agency services.
At S$1 billion market cap, this is Singapore’s biggest listed real estate agency. Which means, I’ve to look at PropNex from the lens of analyzing a real estate developer. Why?
Property cycle.
According to Capital Returns, capital cycles follow a pattern:
- Improving supply causes returns to rise above cost of capital: Share price outperforms
- New entrants attracted by prospect of high returns: optimism rises
- Rising competition causes returns to fall below the cost of capital: share price lags
- Business investment declines, industry consolidates, firms exit: cycle repeats.
Now, the trick isn’t to guess the exact stage of a capital cycle, but to spot when Mr. Market’s expectation of a stock gets ahead of reality. I’ll explain.
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But PropNex trades at a historical high valuation
You see, at 21x PE ratio, PropNex trades at a historical high valuation. The last time it traded at peak valuations was back in 2021 (see red circle below). And we know shares tumbled between 2021-2022.
More important is this: Mr. Market is treating PropNex like a growth stock. As I’ve said before, growth stocks need to keep delivering elevated profit growth for longer than what the market expects.
I cannot deny PropNex’s financial results are remarkable.
Yet it seems like its past results paint a different story – a slowing trend.
1H2025 peak profits
Here’s what I’m observing: PropNex’s shares are trading 75% higher than its historical average PE ratio. This is despite its slowing financial results.
What’s more, management has also said there will be modest growth for 2025. Thiis could suggest that this year’s strong performance has already been captured in the first half of this year.
“For 2025, the Group sees a modest 3% to 4% rise in overall private homes prices, supported by resilient demand, healthy household balance sheets, easing interest rates, and an attractive pipeline of new launches. Developer sales are estimated to range between 8,000 and 9,000 units (excluding ECs), while private resale volume is between 14,000 and 15,000 units.”
What’s more…
“Management said 2Q2025 saw fewer projects debut with developers launching just 1,520 new units (excluding Executive Condominiums (“ECs”)), compared with 3,139 units in 1Q2025. Developers sold 1,212 new units (excluding ECs) in 2Q2025, down by 64.1% from 3,375 units in 1Q2025 but up by 67.2% when compared with 2Q2024’s 725 units.”
Earlier this year, Maybank Research said PropNex’s 1H2025 might mark a profit peak. That’s because 4Q2024 results were unusually strong, which led to revenues recognized 3-4 months later:
“2H24 turnover fell 7.7% YoY to SGD437.4m, dragged by lower commission income from project-marketing services. As a result, GPM also narrowed by almost 1ppt to 8.6% in 2H24 in tandem with the change in business mix. The surge in new project launches made 4Q24 an unusually strong quarter, with nearly half of its total private new home transactions for 2024 occurring in this period.
As revenue is typically recognised 3-4 months later, this means the group’s half-yearly earnings could potentially peak in 1H25, notwithstanding the current red-hot primary market.”
I agree. Property transactions typically have lag times in recording their profits. This could distort how PropNex shares price movements and profit trends.
Would I sell PropNex at market highs? Or is it worth buying today?
A “growth stock” must have sustainable growth despite market cycles. While I wish PropNex shares were a stallion between the legs, I’ll be honest with myself:
- On one hand, PropNex’s shares have hit peak records – with its PE ratio tripling its historical average
- On the other hand, its previous year financial results have headed the opposite direction.
These clear trends are shouting to me a logical conclusion that’s hard to ignore.
So what’s interesting out of all these rambling? Let’s get back to first principles – Propnex dividends.
Given its outstanding performance, management will pay a S$0.05 per share interim dividend That’s a 87% payout ratio and a ~5% dividend yield based on current prices. Not too bad.
In fact, PropNex has been paying growing dividends over the last couple of years:
Assuming its earnings stop growing and remain steady, that’s a decent payout for the long-term dividend investor.
In my opinion, PropNex’s dividends are secured by its gushing free cash flow and a pool of extremely hardworking 13,000+ salesforce driving commissions.
Furthermore, the property agency has no debt and plenty of cash for expansion. As at end Jun 2025, it has S$136 million of cash, which already accounts for 35% of its total assets.
Even if it decides to reinvest its cash into the business, it still has enough to reward shareholders with dividends.
My final thoughts
I don’t normally pay attention to smaller stocks but PropNex shares’ big move captured my attention. After all, this is still Singapore’s biggest listed real estate agency. It’s a market leader with a rock-solid balance sheet.
However, at a 29x PE ratio, it’s hard to shout for pure value at this point – Management is guiding modest growth, last few year’s financial results have been trending lower. And I’m cautious of a property cycle turning.
Meanwhile, what’s interesting is its 5% dividend yield that’s still well secured by the property giant’s free cash flow. A hungry salesforce and yield hunters would probably like what they are seeing , 5% dividend yield backed by a warchest and a free cash flow sounds like a good deal.
Sometimes, investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
Hi Willie,
Thanks for your great insights and analysis.
With both valuation (21X) at ATH with a growing dividend, it will take quite a big market correction (or even black swan event) for valuation to revert to historical level (10X) before considering to accumulate, subject that dividend yield remain unchanged at 5%.
Regards
Ian
Hey Ian!
I appreciate your comments. Good point. Buying PropNex really depends on your investment objective. For a smaller cap stock, its dividend yield does look interesting. What’s more, it’s also an asset-light business, though I’m just aware of its valuations.
Cheers,
Willie