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PropNex Limited’s Initial Public Offering: What Investors Need to Know

PropNex Limited is gunning for a public listing in the Singapore stock market, amid a buoyant mood in the local property sector.

If successfully listed, PropNex will join APAC Realty Ltd (SGX: CLN), which operates the second largest real estate agency in Singapore, as another real estate services provider on the local stock exchange.

About PropNex’s business

According to its initial public offering (IPO) prospectus, PropNex is an integrated real estate services group. It has four business segments, and they are real estate brokerage, training, property management, and real estate consultancy.

PropNex’s primary business is in the “provision of real estate brokerage services comprising real estate agency and project marketing services.” It operates its real estate agency through its wholly-owned subsidiary, PropNex Realty Pte Ltd, which is Singapore’s largest real estate agency. As of 6 June 2018, PropNex Realty had 7,248 salespeople. PropNex Realty is supported by the company’s project sales and marketing arm, PropNex International Pte Ltd.

Source: PropNex IPO prospectus

The chart above shows how PropNex Realty’s share of the Singapore residential property market has grown over the years.

IPO details

A total of 42.5 million shares will be on offer at a price of S$0.65 each. Of the 42.5 million offer-shares, around 40.4 million will be placed out to certain investors, and only 2.1 million will be offered to the general public.

PropNex is expected to have a market capitalisation of S$240.5 million after its IPO, based on a post-IPO share count of 370 million shares.

The company is looking to raise net proceeds of S$38 million through its listing. It plans to use a significant portion of the proceeds (S$12 million, or 32% of net proceeds) for local and regional expansion through mergers and acquisitions, joint ventures, and partnerships.

21% of the net proceeds, or S$8 million, is allocated for the enhancement of its real estate brokerage business; S$7 million will be used for expanding a range of business services; S$6 million has been set aside to enhance Propnex’s technological capabilities; and the remaining S$5 million will be for general working capital purposes.

The IPO closes on 28 June 2018 at 12:00 pm, and trading of Propnex’s shares is expected to commence on 2 July 2018 at 9:00 am.

Financial highlights

PropNex’s revenue had increased from S$204.8 million in 2015 to S$361.3 million in 2017, translating to a compounded annual growth rate of 32.8%. Profit attributable to owners of the company performed better, rising by 58.4% per year from S$6.5 million to S$16.3 million.

The company also has a robust balance sheet; as of 31 December 2017, it carried S$27.7 million in cash and equivalents, and zero borrowings.

The thing that stands out for me the most is how Propnex’s free cash flow had improved over the years. This important financial number had increased from around S$5 million in 2015 to S$22.2 million in 2017, resulting in an impressive annualised growth rate of 111%. Free cash flow is the cash generated from PropNex’s business that it can use to pay out dividends to shareholders, buy back shares, and make acquisitions, among other uses.

Valuation and dividends

Based on its listing share price of S$0.65, post-IPO share capital of 370 million shares, and earnings for 2017, PropNex would have a price-to-earnings ratio of 14.8. For perspective, APAC Realty had a price-to-earnings ratio of 10.3, based on its closing price of S$0.865 on Tuesday and its earnings over the last 12 months.

PropNex does not have a dividend policy. However, its board intends to recommend and distribute dividends of at least 50% of its net profit for the period from the listing date to 31 December 2018, and for the whole of 2019.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P owns shares in APAC Realty Ltd.