Well, its official.
I’m formally a fanboy of Propnex.
On Tuesday, 25 April 2023, Propnex held its Annual General Meeting in boring HDB Hub, away from the fancy hotels that you would expect of a stock that has today become quite a media darling.
And instead of bitter coffee, they were smart with their budget.
They got cakes from Bengawan Solo.
Its way better than the atas food you would get at the hotel for a pricey $28 per pax.
But it’s proof of one thing.
This management does know where to spend, and when not to spend.
Why Propnex is still cheap
Some might say that the Propnex climb over the past year has been meteoric, and it’s simply too pricey at this $1.90, (which has just halved to $1.19 because of the recent share split).
This article will share what I got from the Propnex AGM, and why you might still want to add at this price.
Explaining the share split
Ismail Gafoor, the CEO of Propnex, said the share split was to reward shareholders.
But the deeper underlying reason is to promote liquidity.
What do you mean?
If you look at another company like Apple, they have split 5 times since IPO.
Often, a company splits their shares so that more can buy at a cheaper price. Whilst Propnex was only trading at around $1.90 before the split, they decided to still do it.
I suspect that Ismail and the management wants this stock to remain affordable to the retail investor. Because on the surface, it really doesn’t make much sense to split the stock when it’s only $1.80. But of course, I’m not Ismail. He may have another card up his sleeve.
Let’s continue with their dividends
Ismail spoke about how they wanted to be a dividend darling, where people bought them because of the handsome dividends they paid.
Being an asset light model, where their biggest assets are their people, they have almost little capital expenditures to speak of, beyond their office space and their technology.
Propnex transact properties. They don’t have to pay expensive prices for land banks and developers (unlike REITs), and if you think about it, it’s actually a very smart business.
A shareholder asked about why they hadn’t entered the developers market.
Ismail’s reply was that it was a potential conflict of interest, where developers might think that they would try to push sales of the properties Propnex developed, over and above the sales of other launches.
But it’s also smart because it means Propnex remains untethered to the entire developers’ market, where one has to take into account supply chain shocks, prices of cement, and many other things.
Un-replicable culture
A shareholder asked about what was that different about Propnex’s property agents, considering that other agencies also had their own.
Ismail, the CEO, shared about how practices were easy to copy, but culture was difficult to translate.
Sure, other companies could take the usual practices like boot camps, workshops for agents, and bring them to another company. But the inherent, embedded culture was not that easy.
Two examples that Ismail raised.
Firstly, the idea the agents could not jump teams, within a year. If they had an issue with their team leader, they had to leave the organisation, before they could come back and join another team.
It’s brilliant thinking, in retrospect.
Because as Ismail said, this prevents cannibalisation of different teams, creating a culture where people hop and shift when they see one leader doing better than the other. And it also prevents leaders from poaching another young, up and coming agent if they see them rising fast.
It ensures that there is a mutual culture of win-win, rather than lose-lose.
The other thing was around how there was a big culture of giving. In the bootcamps they run for new agents, Ismail shared about how there was a queue amongst the more experienced (no kidding!) to be unpaid facilitators. These boot camps ran from 7am to midnight, for 3 days, and involved activities to get new agents into the Propnex way.
These facilitators got nothing, but simply wanted to give back.
The management team is very prudent in spending
Lastly, Ismail pointed out about how Propnex was the only agency amongst the top 4 (ERA, Huttons etc.) that didn’t pay the $200 odd for the yearly renewal fees of agents.
With 11,000 agents, this translates to about $2.2 million.
Ismail spoke about how he would rather use that money to invest in their training and technology for agents to be more productive, than paying for something that agents should themselves be responsible for.
Of course, from the Bengawan Solo cakes they got you, you could probably tell.
But is there still growth?
I remember my dad telling me that I had to see what the longterm potential of Propnex was, especially in a small market like Singapore.
And Ismail rightly pointed out that their regional expansions were still not contributing a large part to their revenues. He declined to share the revenue mix between Singapore and abroad.
But he did share that the overseas offices were on a franchise model, where partners would pay a fee for using the Propnex brand.
In that sense, there was little cost involved in expanding abroad. In fact, if the companies abroad did well, there was an agreement whereby Propnex could buy a share of the company.
The long term play is still for Propnex to grow its share of property agents in Singapore.
And one might think that getting more agents, in a small property market like Singapore, may seem extremely unsexy as a growth plan.
It’s like asking a company.
What’s your growth plan?
Oh we are going to get more sales agents.
But its actually that simple.
If you think about it, this is what makes the Propnex so incredibly simple to understand.
You don’t need a PHD in accounting to realise that
the more agents you have,
the more commissions they will bring,
and the greater the revenues will be.
Of course, there will come a day when that revenue flattens, but there’s still quite a way to go.
With Propnex aiming for 15,000 agents by 2025, they are still 25% away.
Here’s why I think their revenue will shoot.
Lower supply in past few years, resulting in unmet demand
If you talk to your friends who’re getting married, they will complain to you about how hard it is to get a home.
But that also means that the demand is not going to taper off, however fast HDB tries to build the BTOs. Because there are going to be more and more entrants coming into the market.
Have you ever thought of how HDB, or the property market is going to deal with the people who didn’t get their homes in COVID due to the shortage, and then the new and coming couples who want to get their homes?
There’s no way they are going to be able to meet demand that fast.
Even though 2023 is going to be a bumper year in terms of the number of units coming into the market, it fails to factor in the previously unmet demand, and the current demand coming into the market.
Homes don’t just pop out of mid air.
And this means that people who can afford it, are going to go into the private market, getting condos.
They aren’t going to wait for the BTO to complete, or the resale to come into the market.
They are just going to buy, because they can’t wait.
I think.
This would mean larger commissions doing more expensive house purchases.
Uncertain market may mean more buyers turning to luxury, big-ticket items
Despite COVID, you can see that the number of transactions were actually higher in 2021, compared to 2022.
And in a more volatile market with rising inflation, it may mean that more buyers turn to big-ticket items to hedge inflation.
Already, we are seeing record revenues at the likes of The Hour Glass, which is a luxury retailer.
And as early as 2006, Citigroup was already ‘banging the drum on plutonomy’, talking about how they loved companies that sell or service the rich, such as luxury goods and private banks.
Come on, Propnex
If you go to some of Propnex’s events, like their Monopoly championships, you will soon realise why Propnex remains a priced asset to hold.
Their people are friendly and kind, and hardly ever try to show you how rich they are, despite them being fabulously wealthy.
They are helpful.
They try to serve.
And I think that’s why they will continue to succeed.