PGRU - PropertyGuru Should See Slower Growth In 2023

2023-06-06 16:35:41 ET

Summary

• PropertyGuru Group Limited reported its Q1 2023 financial results on May 24, 2023.
• The firm operates online real estate portals for property sales and related services in various Southeast Asian countries.
• Management guided 2023 revenue growth materially lower than 2022's growth while operating losses continue and government actions foster an uncertain environment.
• I'm on Hold for PropertyGuru Group stock for the near term.

A Quick Take On PropertyGuru Group

PropertyGuru Group Limited ( PGRU ) reported its Q1 2023 financial results on May 24, 2023, reaffirming its full-year outlook on over 25% revenue growth in every region except Vietnam.

The firm operates real estate marketplaces for properties and related financial and other services in Southeast Asia.

With management guiding to slower topline revenue growth for 2023, reduced gross profit margin, continued operating losses, and uncertain government regulatory actions, I'm on Hold for PGRU stock for the near term.

PropertyGuru Overview

Singapore-based PropertyGuru was founded in 2007 to provide property owners, agents and service providers with an online platform for connecting to buy and sell property and related services.

The firm is headed by CEO and Managing Director Mr. Hari Krishnan, who previously served on the Singapore Government's Future Economy Council Modern Services Subcommittee and scaled LinkedIn in the Asia Pacific region.

The company's primary offerings include the following:

• Home buying marketplace

• Financing marketplace

• Home services platform

• PropertyGuru For Business

• Events and publications

• Countries: Singapore, Malaysia, Indonesia, Thailand, Vietnam.

PGRU went public in the U.S. through a merger with a blank-check company (SPAC) backed by Richard Li and Peter Thiel that valued the firm at around $1.7 billion in March 2022.

PropertyGuru's Market

According to a 2023 market research report by Mordor Intelligence, the Malaysian residential real estate market was estimated at $21.16 billion in 2023 and is expected to reach $28.2 billion by 2030.

This represents a forecast CAGR (Compound Annual Growth Rate) of 5.9% from 2023 to 2028.

The main driver for this expected growth is increasing demand for cheaper housing as younger demographics seek their first homes.

Also, Malaysia is one of the most urbanized countries in the region, with significant in-migration from rural areas to more heavily populated cities.

The company is also active in the countries of Singapore, Indonesia, Thailand, and Vietnam through expansion via acquisitions in recent years.

PGRU faces competition from a variety of market participants across traditional offline and online real estate and related service sectors, including:

• 99.co - Singapore

• Rumah123.com - Indonesia

• DREA - Thailand

• EdgeProp - Malaysia

• SRX - Singapore

PropertyGuru's Recent Financial Trends

• Total revenue by quarter has trended unevenly higher, likely due to seasonal factors:

• Gross profit margin by quarter has generally trended higher in recent quarters, YoY:

• Selling, G&A expenses as a percentage of total revenue by quarter have varied as follows:

• Operating income by quarter has fluctuated in negative territory as shown below:

• Earnings per share (Diluted) have remained negative in all but one of the last nine quarters:

(All data in the above charts is GAAP)

In the past 12 months, PGRU's stock price has fallen 23.93% vs. that of the iShares Expanded Technology-Software ETF's ( IGV ) rise of 11.35%, as the chart indicates below:

For the balance sheet, the firm ended the quarter with $221.2 million in cash and equivalents and no debt.

Over the trailing twelve months, free cash used was $16.2 million, of which capital expenditures accounted for only $1.0 million. The company paid $4.8 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For PropertyGuru

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha)

Commentary On PropertyGuru

In its last earnings call ( Source - Seeking Alpha ), covering Q1 2023's results, management highlighted the challenging conditions the firm faces in Vietnam, as the government there has made obtaining credit for property purchases more difficult.

The firm continues to invest in adding capabilities to its online offerings in Malaysia, which the company leadership sees as "crucial for our future success."

Singapore's current "robust property market" also contributed to the company's growth results, despite the government there increasing property taxes and stamp duties.

Management did not disclose any company or customer retention rate metrics.

Total revenue for Q1 2023 rose 17.8% year-over-year while gross profit margin increased by 0.6 percentage points.

Selling, G&A expenses as a percentage of revenue fell 5.3 percentage points year-over-year and operating losses improved slightly YoY.

Looking ahead, management reaffirmed its guidance for 2023 for topline revenue growth of around 23.8% at the midpoint of the range.

If achieved, that would represent a materially slowing growth rate from 2022's growth of 32% over 2021.

The company's financial position is strong, with substantial cash reserves and no debt.

Regarding valuation, the company has lost more than half its value since its SPAC transaction was completed in March 2022.

From management's most recent earnings call, I prepared a chart showing the frequency of key terms mentioned (or not) in the call, as shown below:

I'm most interested in the frequency of potentially negative terms, so management or analyst questions cited "Uncertain" two times, "Challeng(es)(ing)" eight times, "Macro" seven times, and "Drop" four times.

The negative terms refer to growing government activity to slow the growth of the respective property markets in which the company operates.

In the past twelve months, the firm's EV/Sales valuation multiple has dropped 44.4%, as the chart from Seeking Alpha shows below:

The primary risk to the company's outlook is increasing government regulatory actions in property markets in the countries where the firm operates.

While management says that there have recently been encouraging signs in certain respects, governments can be quite unpredictable, so owning PGRU in the near term may be a risky bet.

With management guiding to slower topline revenue growth for 2023, reduced gross profit margin, continued operating losses, and uncertain government regulatory actions, I'm on Hold for PropertyGuru Group Limited stock for the near term.

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