Listed in 2018, PropNex Ltd (SGX: OYY) is Singapore’s largest real estate brokerage firm. The company is already facing major challenges just a year after going public. The real estate brokerage firm’s 2019 first-half revenue and profits were impacted by the government’s decision for additional property cooling measures last year, resulting in private resale transactions declining by more than 50%.
Given the group’s poor results and the market’s muted expectation for the private resale market in the near-term, it’s not surprising to see Propnex shares trading some 25% off its peak. But this could represent a good buying opportunity for investors who are looking for a fundamentally-sound company with decent long-term prospects.
Although the government has shown that it is willing to step in to ensure that property prices rise in a sensible way and within economic fundamentals, it is important to note the Monetary Authority of Singapore is not looking to depress prices over the long term. Ravi Menon, managing director of the Monetary Authority of Singapore, stressed that the government aims to ensure that price movements are “consistent with economic fundamentals.”
Given these comments, we should expect property prices to grow in line with GDP (gross domestic product) and nominal wage increases.
The property transaction volume will also likely trend upwards over the longer term as population and the number of private and public home units in circulation increase.
Robust balance sheet
Another thing to like about PropNex is its strong financial position. As of 30 June 2019, the real estate brokerage firm had S$72.7 million in cash and no debt.
It also operates an asset-light model, with minimal capital expenditures. Despite the muted residential property market in Singapore, Propnex still reported a S$5.7 million net profit attributable to shareholders and generated S$10.7 million in free cash flow in the first half of 2019.
After its share price sell-off, PropNex now trades at an attractive valuation. Its cash balance of S$72.7 million makes up 39% of the firm’s entire market cap.
On top of that, based on the first six months of the year, despite the steep decline in earnings, Propnex has an annualised price-to-earnings ratio of 16.2. Given a large amount of cash balance on its books and the likely pick-up in real estate transaction volume in the long-term future, now could be a good time for bargain hunters to pick up Propnex shares.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. Motley Fool Singapore contributor Jeremy Chia does not own shares in any of the companies mentioned.