The Motley Fool

Is PropNex Limited Cheap After Falling 24% in 1 Year?

PropNex Limited (SGX: OYY) is Singapore’s largest listed property agency with over 7,700 sales professionals. The group acts as an integrated real estate services group with business divisions dealing with real estate brokerage, training, property management, and real estate consultancy.

With the implementation of the latest round of property cooling measures by the government back in July 2018 to moderate housing prices and cool “speculative” demand, transaction volumes and values have fallen for all real estate agencies. PropNex’s operating leverage cuts both ways: Revenue tumbled by 27.8% year on year in Q1 2019, while net profit attributable to shareholders plunged by 67.6% year on year. The group’s shares are trading at a one-year low after falling from a high of S$0.68 to their current price of S$0.52.

The question on investors’ minds is, naturally: Is the company cheap enough to buy now?

Diversifying its revenue sources

In spite of the moribund state of the property market, PropNex is still pushing ahead to launch new offerings for customers. In February, it launched an industry-first service offering called HDB Auction, which allows the buying and selling of HDB resale flats via open public tender. This new service hopes to achieve optimal results in a shorter time frame and eliminate long negotiation periods.

The group has also set up two new departments — corporate leasing and valuation — in order to drive new streams of revenue for its real estate business. Corporate leasing will serve and manage the corporate clients and owners of multinational companies and high-net-worth individuals, while the valuation department will grow the valuation business service to banks and financial institutions.

New launches may stoke demand

The first two months of 2019 saw fewer property launches, and this resulted in PropNex seeing overall lower transaction volume and commissions. However, volume is expected to pick up with more new project launches for the rest of 2019. In fact, it was just reported this month that the One Pearl Bank project by CapitaLand Limited managed to sell 80% of the 200 units launched at an average price of S$2,400 per square foot. The good sales numbers were a positive sign that the property market may be recovering.

Interest rates have moderated

The 3-month Singapore Interbank Offer Rate (SIBOR), which is often used by banks as a way to price mortgage loans, has hit a decade high of 2%, but it has been hovering there for a while now. As global growth is slowing due to the US-China trade tensions, the US Federal Reserve is prepared to begin cutting interest rates again in order to stimulate the economy. This move may trickle down to other countries, such as Singapore, and the expectation of a rate cut has already caused interest rates here to moderate.

Buyers who no longer expect rates to continue rising will also start wading back into the market, and this trend bodes well for PropNex in the medium term.

Long-term demand remains sanguine

With the above initiatives and trends, it appears that PropNex may have priced most of the bad news into its shares. Long-term demand for property remains sanguine as Singaporeans (and Asians in general) favour property as a long-term investment asset class. PropNex’s shares offer a historical dividend yield of 6.8% and trade at a price-to-earnings ratio of around 9 times.

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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of CapitaLand Limited. Motley Fool Singapore contributor Royston Yang does not own shares in any of the companies mentioned.