I’ll start off with some facts:
- Revenue grew 147% to S$260 million
- Net profits rose 115% to S$34 million
- Company paid a half yearly dividend of S$0.055 per share
- It has no debt, flushed with cash of S$120 million
PropNex Ltd (SGX.SI) is Singapore’s largest property agency. At S$707 million market cap, this agency continued to produce solid results in its latest half yearly results.
So here’s the thing.
Properties aren’t traded like stocks. You can’t buy or sell your property through an electronic exchange. Not yet. Typically, an agent helps transact your properties. In exchange for an agent’s help, the agent gets a fee (or commissions) proportionate to the property’s value. The higher the property value transacted, the more fees an agent earns.
Today, PropNex has more than 9,000 agents helping people buy and sell their properties.
An interesting comment made by one of Titan’s Diligence subscribers: “As the industry consolidates, more small agencies close down and more agents can move to PropNex. Their earnings will continue to increase… PropNex has the power to turn down projects and focus on large ones…”
PropNex is a Capital-Efficient Business
The more properties PropNex’s agents transact, the more the company makes money through its strong agent network. PropNex doesn’t need to invest in heavy equipment or gather new technology. It simply needs to hire more agents and ride on a bullish property market.
This makes PropNex a capital-efficient business.
And this allows PropNex to generate a massive amount of free cash flow. Over the past three years, it gushed free cash flow of S$23 million, S$29 million and S$42 million over the past three years.
And over that same period, PropNex’s return on equity (ROE) averaged 37%.
Return on equity (ROE) calculates the net profits a company makes for every dollar invested into the business.
As a result, since its IPO in 2018, it the property agency started paying dividends in 2019.
PropNex’s strong earnings is the result of market dominance in the property brokerage market. You see, PropNex dominates both the private residential market and HDB resale market (based on volume transacted), each with a close to 50% market share.
Over the last three years since its IPO, the stock market has done nothing to its shares (see below).
Source: Yahoo! Finance
Why PropNex Shares Went Up 222% Over a Year Ago
But it’s only during the COVID pandemic last year that PropNex’s shares started to climb.
The thing is, with people stuck at home, I thought no one will buy or sell their properties. I was wrong.
Because of the pandemic, there were massive delays in the Build-to-Order (BTO) HDB launches. And this forced more people to buy resale HDB flats instead. This caused the HDB resale market to surge. People weren’t willing to wait out another 5 to 7 years for their flats to be ready.
Here’s the other thing. Singaporeans are obsess with their properties. People with HDB want to upgrade to a private condo in their next stage of life. Who wouldn’t like a more comfortable lifestyle? And once people sell their resale flat, the next step is to buy a condo.
More business for PropNex.
Even with the travel restrictions, ultra high end properties like good class bungalows continue to sell well too.
According to what I’ve read: “Analysts expect the number of homes moved by developers in the primary market to cross the 10,000-unit mark this year, with some projecting the tally could climb as high as 12,000 units. This should outstrip the 9,982 units sold last year.
Already, over 6,450 private homes (excluding executive condominiums) were sold by developers in the first six months of the year, while unsold inventory continues to dwindle.
Data from the Urban Redevelopment Authority (URA) shows that the number of unsold, uncompleted private homes stood at 19,384 as at the end of Q2 2021, down from 21,602 units in the prior quarter.
Private home prices could rise up to 5 per cent this year, according to CGS-CIMB.”
Here’s the thing, if Singapore’s property market can continue to grow, PropNex can continue to ride the bullish property market. And with the gradual opening up of our economy, I wouldn’t be surprised if there are more foreign buyers coming in. This should be big business for PropNex.
Sometimes investing can be simple.
Always here for you,
Willie Keng, CFA
Founder, Dividend Titan
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