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PropNex Limited is the latest stock initial public offering (IPO) on the Singapore Exchange. Shares of the home-grown real estate service group debuted at 68.5 cents on Monday and rose as high as 22% in its first day of trading before closing at 71.5 cents.
The 2.125 million shares offered for public subscription was subscribed 24.6 times, indicating buoyant sentiment among investors for the PropNex IPO and the local property sector in general.
If you’re looking at the PropNex IPO with interest, here are four things to know before you invest:
According to the independent market research report presented in the IPO prospectus, PropNex is the largest real estate agency in Singapore. As at 1 January 2018, PropNex has 6,684 agents under its umbrella with APAC Realty in second place with 5,882 agents. (APAC Realty, which listed in September 2017, operates under the brand ERA Realty.)
On top of that, PropNex also holds a leading position in the Singapore residential market based on number of units transacted – it has a 42.7% market share in the primary private market, 45.3% market share in HDB resale, and 23.0% market share in private leasing.
Source: PropNex IPO prospectus
Early 2016 was a challenging period for the Singapore property market with many property developers facing record penalties for unsold units in their condominium projects. To unload units before the deadlines and encourage agents to market them, developers increased the commissions from the typical 1-2% to 3-4% for their launch projects. PropNex were one of the early movers to secure the higher commissions for launch projects and benefited when the property market picked up in the second half of 2016 and 2017.
However, from industry sources I corresponded with, they feel that 2018 will be more of a resale market (as opposed to a ‘launch’ market) driven by robust en bloc sales and en bloc homeowners shopping for new homes in the resale market. So I personally think it is unlikely that PropNex will enjoy the same level of growth this year as compared to 2017.
Within every real estate agency, there are many real estate teams each comprising a number of real estate agents. Each is led by a team leader who built the team and is now responsible for the team’s growth, training, and development. In PropNex, its largest team is Powerful Negotiators with over 3,000 agents which contributed 61.3% of the company’s total revenue in 2017:
|Powerful Negotiators contribution||42.5%||46.2%||61.3%|
|PropNex brokerage income||$200.1m||$240.4m||$355.8m|
|Powerful Negotiators brokerage income||$85.0m||$111.0m||$218.0m|
Clearly, PropNex will be hugely impacted if Powerful Negotiator’s team leader, Kelvin Fong, leaves for a rival and takes along a significant number of agents with him. The company is keenly aware of this, which is why Fong is sitting on the board as an executive director and will own 7.3% stake in PropNex post-IPO.
PropNex’s brokerage income in 2017 was $355.8 million from 6,684 agents. In comparison, APAC Realty’s generated a higher brokerage income of S$391.2 million from a smaller base of 5,882 agents. To break it down, APAC Realty’s agents generated $66,508 in brokerage income per agent while PropNex generated $53,232.
|2017 brokerage income||$355.8m||$391.2m|
|Number of agents||6,684||5,882|
|Brokerage income per agent||$53,232||$66,508|
So while PropNex is the largest real estate agency by number of agents and annual transactions, APAC Realty is more efficient at generating brokerage income.