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Singapore’s Leading Real Estate Agency PropNex Makes Debut on SGX

SGX Research
  • PropNex, Singapore’s leading real estate brokerage, made its trading debut on SGX Mainboard today. It has four main business segments – Real Estate Brokerage, Training, Property Management and Real Estate Consultancy.
  • Frost & Sullivan forecasts Singapore’s primary private residential transactions to grow at a CAGR of 3.8% in volume, and 6.5% in value, between 2017 and 2022. The outlook for the resale market remains positive as economic conditions continue to improve, and developers offer increased promotions to offload unsold units.
  • The 10 largest constituents of the SGX Real Estate Developers & Operators Index have a combined market capitalisation of S$64.8 billion. These 10 stocks have generated a market capitalisation-weighted average total return of 8.4% over the last three years.

Singapore Property Market Outlook

According to market research firm Frost & Sullivan, transactions in Singapore’s primary private residential market are estimated to grow at a CAGR of 3.8% in volume, and 6.5% in value, between 2017 and 2022. Increased interest in bids for Government Land Sales (GLS) imply developers are keen to accumulate land bank in view of higher transaction volumes. En-bloc sales are also on the rise, reaching a seven-year high of S$8.1 billion in 2017, which in turn will likely translate into more new units being launched over the next 1-2 years. Prices of private residential units are expected to bottom out in 2018 and remain on a path of steady recovery, in line with Singapore’s overall macroeconomic outlook.

In the IPO prospectus, Frost & Sullivan identified the following demand drivers for Singapore’s residential market and real estate business:

  • Increasing demand and multiplier effect from en-bloc sales
  • Reduction in completion of new private housing units to drive leasing demand and reduce vacancy rates
  • Affordable housing prices compared to other developed nations
  • Recovery of economic conditions
  • Upgrades from HDB to private residential property or executive condominiums (ECs)

According to the prospectus, PropNex Realty is Singapore’s largest home-grown real estate agency. The company is also a leading project marketing agency, with market shares of 42.7% and 45.3% of the residential primary private market and residential HDB resale market respectively. Refer to the Independent Market Research report in the prospectus for more details.

Mainboard Peer – APAC Realty

PropNex’s peer – real-estate brokerage firm APAC Realty (SGX:CLN) – listed on SGX Mainboard on 28 September 2017. With a current market capitalisation of nearly S$300 million, APAC Realty shares are trading more than 25% above their IPO price of 66 Singapore cents.

Ten Largest Constituents of the SGX Real Estate Developers & Operators Index 

The SGX Real Estate Developers & Operators Index, which has 25 members, is a free-float, market capitalisation-weighted index that measures the performance of listed real estate developers and operators in Singapore. The 10 largest constituents of the Index have a combined market capitalisation of S$64.8 billion. The average market capitalisation-weighted P/B and P/E ratios for these 10 stocks are 0.7x and 9.0x respectively. These 10 stocks have generated a market capitalisation-weighted average total return of 8.4% over the last three years.

The table details the 10 largest constituents of the SGX Real Estate Developers & Operators Index, sorted by market capitalisation. Click on the stock name to see its profile in StockFacts.

Name SGX Code Market Cap S$M 28 Jun Closing Price Total Return YTD % 1 Year Total Return % 3 Year Total Return % P/B (x) P/E (x) Dvd Ind Yld %
Hongkong Land Holdings* H78 22,927 7.150 5.7 -0.1 -2.7 0.5 3.0 2.7
CapitaLand C31 13,183 3.160 -7.5 -6.8 1.5 0.7 10.1 3.8
City Developments C09 9,939 10.930 -11.5 3.4 18.0 1.0 19.5 0.7
UOL Group U14 6,420 7.620 -12.4 1.8 18.5 0.7 7.0 2.3
Yanlord Land Group Z25 3,071 1.590 2.1 -5.7 53.9 0.6 4.9 4.3
GuocoLand F17 2,402 2.030 -9.4 10.6 -6.8 0.5 4.7 3.5
Wheelock Properties (Singapore) M35 1,950 1.630 -11.3 -10.1 3.6 0.6 13.9 3.7
United Engineers U04 1,791 2.810 8.0 4.1 24.8 0.9 20.1 1.4
Ho Bee Land H13 1,578 2.370 0.1 5.3 24.9 0.5 6.5 3.4
Bukit Sembawang Estates B61 1,497 5.780 -7.8 -7.6 34.0 1.2 27.1 0.7
Market Cap Weighted Average       -3.1   -0.8     8.4    0.7  9.0 2.7

Source: Bloomberg & SGX StockFacts (data as of 29 June 2018). *Note: Hongkong Land Hldgs are traded in USD however SGD equivalents are shown in table.

PropNex’s IPO (Click here for Prospectus)

PropNex, which provides real estate brokerage and project marketing services, made its debut on SGX Mainboard today. Its primary business is to provide real estate brokerage services through its two subsidiaries, PropNex Realty and PropNex International. Its core business can be divided into four different segments:

  • Real Estate Brokerage – Provision of real estate brokerage services, comprising real estate agency and project marketing services
  • Training – Conduct training to implant necessary knowledge related to real estate agency work
  • Property Management – a one-stop professional consultancy that provides specialised solutions in property management, building diagnostics and facility management
  • Real Estate Consultancy – Provision of auction and corporate sales services and investment or en-bloc services

Business Strategies and Future Plans

  • Aim to enhance competitiveness and operations of the real estate brokerage business
  • Expand locally and regionally through franchising, licensing or mergers and acquisitions
  • Expand PropNex’s range of business services
  • Increase productivity through enhancement of technological capabilities

Company Strengths 

  • Market leader in size – it is the largest real estate agency in Singapore
  • Proprietary brand ownership – owns the rights to proprietary brand “PropNex”
  • Asset-light and resilient business model
  • Strong partnership with JLL, one of the largest global real estate services groups

Key Risks (Refer to the IPO Prospectus section entitled “Risk Factors” on page 35-52)

  • Dependent on Singapore’s property market and exposed to its market forces
  • Dependent on availability of mortgage financing
  • Subject to government policies, laws and regulations

Financials 

  • PropNex generated revenue of S$361 million for the financial year ended 31 December 2017 (FY17), representing a 47.4% YoY increase.
  • Gross profit was S$33.8 million in FY17.

Profit before tax was S$22.2 million in FY 17, a 122.5% YoY increase.

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Valuations

  • PropNex’s earnings per share (EPS) for FY17 was S$0.052 (assuming Service Agreements had been in effect from beginning of FY17 and based on pre-offering share capital of 307.1 million shares). This implies a historical P/E of 12.6x.

IPO Details

  • Issue price at S$0.65.
  • Total of 42.5 million offering shares of which
    • 40.375 million shares are under placement tranche
    • 2.125 million shares are under public offer
  • Estimated market capitalisation at S$240.5 million.
  • Use of IPO gross proceeds of S$40.9 million will be as follows:
    • S$12 million – Local and regional expansion through mergers and acquisitions, joint ventures and partnerships
    • S$8.0 million – Enhancement of real estate brokerage business
    • S$7.0 million – Expansion in range of business services
    • S$6.0 million – Enhancement of technological capabilities
    • S$5.0 million – Working capital purposes
    • S$2.9 million – Listing, professional fees and miscellaneous expenses

This article was originally published on SGX.