I’m no expert on property prices or the value of properties in Singapore but what has been consistent in the media are the following headlines,
- 21 million-dollar HDB resale flats sold last month – The Straits Times
- Surge in number of HDB flats, condo units leased in March, rents also rise: SRX data – Today Online
- Single buyer buys all 20 units of ultra-luxe Orchard condo for S$293 million – Mothership
Based on the headlines above, it is clear that the property market is currently bullish. The situation is such that demand exceeds supply, causing prices to rise.
Sector bullishness can cause the stock price of companies operating within that sector to rise but when one stock rises faster and exponentially higher than others, I would say that this company is clearly a winner and definitely deserves some attention.
This article will analyse Propnex (SGX: OYY) and some thoughts on their business model. I’ll briefly touch on their fundamentals, technicals and my thoughts on where the stock is headed should property cooling measures kick in.
What is Propnex (SGX:OYY) and what do they do?
Some of us may not have the best impression of Propnex as they did indeed have some bad PR in the months leading up to their IPO back in 2018. Even after their IPO, there were instances of misconduct from some of their agents with a recent blunder happening recently in September 2020.
Despite their less than positive public image, their company’s fundamentals suggest that this could be one of the most fantastic companies that I’ve ever come across.
Very much like how Airbnb (NASDAQ:ABNB) is winning in the hospitality industry with little to no hotels/lodging ownership, we have Propnex operating in the property industry without owning much properties.
Propnex’s 3 main business segments
If we look at the core services which the company provides, they can largely be broken down into:
- Real Estate Brokerage – Consumers would be most exposed to this segment through Propnex’s home sales, condominium launches etc.
- Training – Most consumers would not be too exposed to this segment of their business. It is catered towards professionals looking to join the industry or to upgrade their skills.
- Real Estate Consultancy – Auction, Corporate Sales, En Bloc etc.
Although they’ve branched out into many different revenue streams, I would still summarize their main business as the provision of real estate brokerage services. They facilitate the buying and selling of property which is amazing as they do not “manufacture” what they sell, thus eliminating the need for any significant capital investment prior to sales.
Is Propnex a good business?
From how I see it, this is an excellent position for Propnex to be in. If we observe other business models such as that of a property developer, there is often a need to inject capital to commence the project and take on the risk of not being able to sell the developed units.
Though it certainly gets more complicated than that when it comes to expenses, Propnex is a relatively “asset-light” company in this sense. They do not need to inject millions of dollars to maintain their assets in order to stay in business.
Fundamental Analysis: Is Propnex profitable?
A brief analysis on its fundamentals, we have some very healthy charts here which depict good performance from Propnex over a period of 5 years.
Impressively, the company was also able to quickly and successfully digitalize its entire business when the pandemic first surfaced back in early 2020. (more on their digitalization efforts later on).
Trading at a Price to Earnings (PE) Ratio of 16.5 indicates that the company is currently fairly valued at the moment given how Singapore’s Market PE Ratio is approximately 15.66.
Technical Analysis – what the trends say?
When I see a stock price move upwards at an almost 90-degree angle, it makes me really really nervous.
The reason is that if we look at the nearest support level (previous price where investors bought in), it would most likely be at the bottom before the exponential upward momentum.
Propnex can buy?
Based on this chart, we can see that this stock finds support along the 20 Day Moving Average, as indicated in blue.
Assuming all else remains the same, we can estimate that the next level of support based on this 20 Day moving average is likely to be within the range of $1.30 to $1.40.
Entering at the current price of $1.62 could subject investors to a pullback of between 15-20%, should current levels fall to the 20 Day Moving Average point. You may want to consider the risk to reward for such a trade.
Furthermore, at an RSI level of 92, the stock is overbought and investors are likely to capitalise on the current price to lock-in their profits.
Propnex’s speedy execution and digitalisation
During the circuit breaker period, PropNex was widely seen as a first mover when it spearheaded initiatives such as online consumer seminars, online training for salespersons and two large-scale virtual property expositions in the course of 2020. The Group quickly embraced digital technologies to ensure business continuity and effectively trained its salespersons to conduct business amid an unprecedented environment.
As such, despite the stepped-up Covid-19 safety measures which took effect from 8 May 2021, it will be business-as-usual for PropNex’s salesforce given that they have been trained to operate and connect with customers through the effective use of virtual and digital platforms.
Propnex 3Q2020 Press Release
From the extract above, it seemed as though Propnex was already prepared for digitalization even before Covid-19 hit our shores.
Effective Management Team
I doubt it’s a matter of luck but rather a testament to the outstanding foresight of their management team.
I also attribute this to how Propnex can be considered a relatively “small” company as more often than not, in the case of larger companies, the speed of decision-making is usually hindered by its own internal processes. This means that the larger the company, the more “layers” of approval need to be passed before a decision can be more.
Furthermore, when a decision is made, the time it takes for the change to actualize may result in the decision itself being obsolete given the rapidly changing market conditions.
As the Group had invested over S$2 million in IT infrastructure and IT-related training in 2019, this allowed our accelerated adoption of technology in 2020 to steer ahead of competitors.
Propnex annual report – Fy 2020
Risks
I’m no expert on our local property market but as a shareholder, I think that is important for us to be aware of the various major catalysts which can potentially cause huge swings in the sectors we are invested in.
Similar to one of my previous articles where I touched briefly on sector rotation and interest rates.
Investors do not need to be experts at such topics. But, as our hard-earned money is invested, we should have a basic understanding of how such themes can influence the market.
What are Property Cooling Measures?
As the name suggests, the objective of a cooling measure is to bring down the “heat” of the market.
The property market is currently bullish. Prices are increasing with more HDB valuations hitting the million-dollar mark. In such circumstances, external forces are required to artificially slow down the market.
This is usually done by increasing the price of properties to reduce its demand.
The motivations behind this bull market can go deep.
In essence, many people want to buy houses in Singapore but there are only a limited number of properties, leading to a price surge. In line with the laws of demand and supply, the opposite is true. Hence, we can expect the cost of purchasing property to go up in time.
Cooling measures CAN SEVERLY influence the share price of Propnex.
When fewer people are buying homes, transaction volume goes down, bringing down future earnings and profitability of the company.
As to when this will happen, or whether or not this will even happen, no one knows.
Concluding thoughts
I am vested in Propnex for reasons beyond its fundamentals, technicals, or future growth prospects. I am vested because I truly believe that there is outstanding leadership guiding the company forward.
Propnex is preparing for the future
Logically, if the Singapore market is experiencing cooling measures soon, what can the company do?
Overseas expansion is definitely an option. Is Propnex doing that?
Cooling measures may cause the share price to experience some downward price momentum but in the long run, so long as its leadership remains unchanged, this company has a permanent place in my long-term equity portfolio.
If you prefer bigger gains, Jeff shares how he builds his property portfolio, even during the pandemic.