PropNex

[BigFatWhale]

With Propnex down by 32% from its peak, we did research on this stock with an impressive return on investment of 37%.

It fared well on almost all counts as compared to Apac Realty. It has management with skin in the game.

However, we do feel that the drop in share price could be a leading indicator of property prices in Singapore which are still holding well at record highs.

Therefore, we are of the view that there could be further downside before it becomes attractive again. 

Here is the link to our research article:

https://thebigfatwhale.com/propnex-value...ty-prices/

[weijian]

I reckon one is truly a dividend stock - When you don't have a low ROIC business (coming probably from been asset light), don't need to invest a lot of additional money into "new technology/machinery" just to keep up to competition, and most importantly, the controlling shareholders are willing to share.

Minutes of the Annual General Meeting of the Company (“AGM” or “Meeting”)

A shareholder raised two questions on (i) reason(s) for the drop in 2H2023 results and whether it was impacted by money laundering issue; and (ii) the dividend payout for FY2023 of 92.9%, was higher than past three financial years (FY2020: 70%, FY2021: 77%, FY2022: 80.1%) although FY2023 results was lower. Any change to the dividend policy to increase the dividend payout ratio going forward.

The Chairman replied that (i) the financial performance of 2H2023 was marginally better than 1H2023. FY2023 financial results was lower than FY2022 due to several factors such as lower stocks and supply of new launches, rise in interest rates and investors waiting to see the impacts, global uncertainties and etc. Overall, transaction volume across Singapore dropped in FY2023.

Nonetheless, PropNex had done fairly well in FY2023 and had improved market shares in some of the segments in a challenging environment. The Chairman confirmed that the money laundering investigation did not have any significant impact to the Company as of the date of the Meeting; and (ii) the Company has a dividend policy of declaring 75% to 80% of net profit attributable to shareholders and intends to retain this percentage. PropNex is a dividend stock. Despite the challenges with the decreased revenue in FY2023, the Company decided to reward shareholders with higher dividend payout ratio as it has decent cash balance. He clarified that it is not a new norm.

While the 75% to 80% payout ratio serving as a guideline, the Board remained open and flexible in dividend distribution to reward shareholders when deemed appropriate based on the Company’s financial position and other considerations such as no significant needs for expenditures.

https://links.sgx.com/FileOpen/Min-AGM-F...eID=803027

[dreamybear]

Will there be more "disruptors" or innovators like Homeseller coming into the market, will more buyers/sellers take to such flat fee services or even opt to do the transactions themselves ?

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The Man At The Centre of Singapore’s Property Agent Drama | Grindsets
https://www.youtube.com/watch?v=x5RKL0bJZOg
"In a city known for its sky-high housing costs, real estate agency Homeseller offers a refreshing change with its budget-friendly flat agent fee, breaking away from the usual percentage-based commissions."

https://sg.finance.yahoo.com/news/ask-pr...38442.html

https://www.straitstimes.com/singapore/h...lat-portal

[weijian]

hi dreamybear,

I recently read Andrew Chen's "The Cold Start Problem". The author worked at Uber previously and is now a GP with a16z. The book details the issues related to scaling network effects.

As the title of the book suggests - for a network to scale and build network effects, the cold start problem needs to be tackled. The cold start problem is defined by solving the hard part of the demand/supply dynamics, and the hard part of the network is based on who does the most work. For example, for Uber case the hard part would be getting drivers since they are the ones doing the driving.

So, let's apply the above framework to the business of real estate transactions via brokers.

Which is the hard part of the network that first needs to be solved? To answer this, we have to ask ourselves who does the most work? (which is obvious). And with this, we can determine whether the "flat fee" or "selling your HDB yourself" will be able to scale up or not, based on the incentives.

All the platforms that have scaled up to current size, did not scale up naturally. They involved a lot of money throwing by brilliant minds to subsidize the hard part of the network until the other side engages to hit "escape velocity". So the next question to ask is - do these "disruptors" have enough money (to burn) and brilliant minds to disrupt the incumbents?

P.S IMHO, using low fees as a "disruption" is not really wise. Afterall, when people sell their real estate, agency fees still constitute a very low portion as a % of the total sums involved.

[weijian]

I remember reading in APAC Realty (ERA) AGM notes explaining that they experienced a workforce attrition due to their recent policy change of not subsidizing their agents' license renewal fees.

Propnex boast that they have ~64% market share of property transactions despite having only ~35% of salesperson in Spore, and so it seems the subsidy money has been put to great use in other areas to boost their productivity.

Minutes of the Annual General Meeting of the Company (“AGM” or “Meeting”)

The Chairman responded that (i) several agencies operating under unsustainable low commission models had recently closed or changed their business approach. PropNex’s value proposition is not based on the lowest commission, but rather on delivering accurate and datadriven advice. The proprietary data tools enable the salespersons to provide customers with realtime, hyperlocal data to price and transact more effectively

PropNex is the only major real estate agency in Singapore that does not subsidise the annual licensing fee for its salespersons, which has been a common industry practice. Instead, the Company invest in training and technology to drive performance. The Company continues to attract experienced salespersons, with over 600 new salespersons joining in the first four months of the year. The focus remains on maintaining high standards in service delivery, salespersons’ development and long-term business sustainability.

https://links.sgx.com/FileOpen/Min-AGM-F...eID=846112