One company that I’ve recently added to my shortlist to invest for the long-term is a real estate agency called PropNex Limited (SGX:OYY), which was listed on the Singapore Exchange on 02 July 2018.

The company is one I’m sure you’re familiar with (if you’re staying in a HDB apartment, you should have received flyers placed on your gate from their property agents; personally I have engaged the services of a PropNex agent to help sell my property and I must say I was thoroughly satisfied with the services rendered, and most importantly, my property was sold at a price I couldn’t be happier with) – according to its FY2019 annual report, PropNex is Singapore’s largest real estate company.

Apart from its real estate brokerage business (where the company has a substantial market share in the residential segments of new project launches, private resale, HDB resale, as well as rental including commercial and residential properties), PropNex’s other business segments include training (for salespersons to equip them with the necessary knowledge to carry out real estate work through their ‘Life Mastery Academy’ – the training arm of PropNex), property management (which deals with the management of boutique and high-end developments), as well as real estate consultancy service (providing corporate sales and auction services, valuation, and corporate leasing services.)

Finally, Singapore is not the only geographical location the company has a business presence in (even though its headquarters is located in the country.) It also has a business presence in Vietnam (with one office located in the country), Malaysia (with four offices), as well as in Indonesia (with a total of 12 offices.)

Now that you have a better understanding of the company in terms of its businesses, in the rest of today’s post, you will read about reasons why I’ve added the real estate agency into my shortlist by looking at its financial statements, debt profile, along with its dividend payout to its shareholders since post-IPO (I will be looking at the company’s post-IPO results for the past 2 years – in FY2019 and in FY2020.)

Let’s begin…

Financial Results (FY2019 vs. FY2020)

Revenue, Net Profit, and Net Profit Attributable to Shareholders (S$’mil):

	FY2019	FY2020	% Variance
Revenue (S$’mil)	$419.8m	$515.6m	+22.8%
Net Profit (S$’mil)	$21.1m	$31.2m	+47.8%
Net Profit Attributable to Shareholders (S$’mil)	$20.0m	$29.1m	+45.2%

The 22.8% year-on-year (y-o-y) gain in its revenue was mainly due to the increase in commission income from project marketing and agency services due to a higher number of transactions completed in FY2020 following the recovery of the private residential market from the cooling measures of July 2018.

As a result of a strong growth in its revenue, both its net profit and net profit attributable to shareholders went up sharply as well.

Gross and Net Profit Margin (%):

	FY2019	FY2020	Difference (in Percentage Points)
Gross Profit Margin (%)	10.6%	11.0%	+0.4pp
Net Profit Margin (%)	5.0%	6.1%	+1.1pp

In-line with improvements recorded in its top- and bottom-line, PropNex’s gross and net profit margins both improved on a y-o-y basis.

Return on Equity (%):

If this is the first time you’ve heard of the term ‘Return on Equity’ (or RoE for short), in layman terms, it is a measure of the amount of profits the company is able to generate (in percentage terms) for every dollar of shareholders’ money it uses in its businesses. My preference is towards companies that are able to maintain its RoE at 15.0% and above consistently.

With that, let us take a look at PropNex’s RoE which I’ve calculated:

	FY2019	FY2020	Difference (in Percentage Points)
Return on Equity (%)	28.9%	34.4%	+5.5pp

Two things I like about the company’s RoE – first is that it has been maintained at a level way above my ideal level of 15.0%, and second is the 5.5 percentage point of improvement in this particular statistic compared to the previous year.

Debt Profile (FY2019 vs. FY2020)

Apart from an improving set of financial results, another condition I have when it comes to shortlisting companies to invest in is that the company should preferably have minimal or no debt, along with one that is in a net cash position.

Speaking of which, PropNex does not have any borrowings in both the financial years I’ve looked at (i.e. FY2019 and FY2020) and as such, the company is in a net cash position as follows:

	FY2019	FY2020	% Variance
Net Cash (S$’mil)	$81.5m	$105.7m	+29.7%

It is good to note that compared to the previous year, the company’s net cash position have strengthened.

Dividend Payout to Shareholders (FY2019 vs. FY2020)

The management of PropNex declares a dividend payout to its shareholders on a half-yearly basis (once when they release their second quarter results, and once when they release their fourth quarter results.)

The following table is PropNex’s total dividend payout to its shareholders for FY2019 and FY2020, along with its payout ratios for the two years I’ve calculated:

	FY2019	FY2020
Dividend Per Share (S$’cents)	3.5 cents	5.5 cents
Dividend Payout Ratio (%)	64.6%	70.0%

Compared to the previous financial year, PropNex’s dividend payout have increased by about 57%, which in my opinion is an impressive feat (this is due to the bullishness in the Singapore property market.) In terms of its payout ratio over the past two years, it looks like the company pays out about 70% of its earnings to its shareholders as dividends.

Is the Share Price of PropNex Considered ‘Cheap’ or ‘Expensive’ Currently?

If you have been following my company writeups in the past, you would have noticed that I have always calculated a company’s historical valuations (over the years), and compare against its current valuations (based on its current share price) to find out whether or not a company’s current traded price is considered ‘cheap’ or ‘expensive.’

The following is PropNex’s historical valuations over the 2 financial year period I’ve computed:

	FY2019	FY2020	Average
P/E Ratio	9.5	10.0	9.7
P/B Ratio	2.7	3.4	3.1
Dividend Yield	6.8%	7.0%	6.9%

As at the time of writing, the share price of PropNex was trading at 82.0 cents, and based on its share price, its current valuation is as follows:

P/E ratio: 10.4
P/B ratio: 3.6
Dividend Yield: 6.7% (calculated based on a total dividend payout of 5.5 cents/share in FY2020)

Comparing its current valuations against its 2-year average, it seems like the current share price of PropNex is on the ‘expensive’ side, due to its higher current P/E and P/B ratios, along with a lower current dividend yield.

In Conclusion

An improving set of financial numbers, a debt-free and net cash company, along with a huge increase in its dividend payout to its shareholders are reasons why PropNex caught my eye and subsequently occupying a place in my shortlist.

Further catalyst for the company will be in terms of a continued improvement in the property market, and an improved set of results in the coming quarters ahead. On the other hand, any introduction of cooling measures on the property market by the Singapore government may see the company’s share price tumble (and hence an opportunity to invest in the company.)

With that, I have come to the end of today’s post. I hope you find the contents above useful. Please note that everything you have read above is for educational purposes only. They do not represent any buy or sell calls for the company’s shares. As always, you should do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a shareholder of PropNex Limited.

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