PropertyGuru Group Ltd (PGRU) 2022 Q3 法說會逐字稿

Thank you all for standing by, and welcome to the PropertyGuru Group Third Quarter 2022 Earnings Conference Call. (Operator Instructions) As a reminder, today's program will be recorded. If anyone objects, please disconnect now. (Operator Instructions) Now let me introduce Mr. Nat Otis, Vice President of Investor Relations. Mr. Otis, please go ahead.

Good morning, and good evening. Welcome to PropertyGuru Group's Third Quarter 2022 Earnings Conference Call. On the call today are Hari Krishnan, CEO and Managing Director; and Joe Dische, CFO. Before we get started, a few reminders. Firstly, our results and additional management commentary are all available in the earnings release, it can be found in the earnings -- in the Investors section of our website. Secondly, today's webcast is being recorded. A replay of today's conference call, along with the transcript, will also be available on the Investors section of our website. Thirdly, we will be making forward-looking statements within the meaning of U.S. securities laws, including, but not limited to, statements regarding our future financial results and management's expectations for the business.

These statements are neither promises nor guarantees and involve risks and uncertainties that may cause actual results to vary materially. Please refer to our earnings release and SEC filings for more information regarding the risk factors that may affect our results. Forward-looking statements are based on current expectations, and the company is not obliged to update or revise them, except as required by law.

Fourthly, this call will also contain non-IFRS financial measures. For a reconciliation of each of these non-IFRS financial measures to the most directly comparable IFRS metric, please see our earnings press release. Lastly, all dollar references are in Singapore dollars, unless otherwise stated. With that, let me now turn the call over to Hari.

Thank you, everyone, for joining us today for our third quarter 2022 earnings conference call. We are pleased with our results this quarter as we delivered solid growth in all our core markets. In October, we announced our brand repositioning guided by Guru. The new positioning reflects our vision to be a trusted adviser to help property seekers and sellers make confident property decisions. Our 47% year-over-year revenue growth this quarter was impressive, but market conditions remain fluid.

We understand that our customers are facing near-term realities of rising inflation and higher interest rates. This new economic reality is challenging, but we believe in the underlying long-term market fundamentals of Southeast Asia. As we often discuss, expanding middle classes, increasing digitalization and continued urbanization will help to grow and sustain our property markets over the next decade and beyond.

As our customers reassess their investments, we are ensuring that our products and services, not only deliver the most value today, but that our future innovation delivers that value in future time periods. In October, we completed the acquisition of Sendhelper in Singapore. Sendhelper is a home services technology startup that allows homeowners and tenants to search and book home services through a mobile app that connects them to verified service providers. Home services include house cleaning, air conditioner maintenance, handyman and repair services.

This quarter, we launched new products and enhancements aimed at delivering further improvements to user experience for our customers. In Singapore, we are currently able to uniquely target 85% of our property acquirers in our marketplace. This not only enhances the quality of inquiry data and improves personalization, but also reduces the unqualified leads for our agent customers. We also launched a beta product, Agent Ratings and Reviews, that helps customers rate their experiences with agents and builds the credibility of our agent partners. We launched a new premium currency, Prime Credits, that allows agents to purchase certain premium products. Our agent partners can use it in addition to the existing ad credits that are used from most products.

In Malaysia, we launched a premium product, Featured Agent, that allows our agent partners to build their brand, enabling better visibility and more leads. In data services, we launched several new modules in Malaysia within the DataSense intelligence platform to provide better insights into the supply and demand of properties, the timing of rental contract expiration and information on unsold new units.

In our commitment to invest in data and software solutions for our business clients, we introduced a new enterprise brand, PropertyGuru for Business. The new brand unifies PropertyGuru's B2B offerings and is designed to guide all enterprise clients, property developers, agencies, banks, valuers and city planners to achieve their growth.

In fintech, as of the end of September, our mortgage business had brokered over SGD 3 billion of home loans. Lastly, PropertyGuru was recently awarded the ISO-27001 certification, a leading international standard for information security management systems. This certification assures our customers and partners that we are committed to having the best safeguards to protect their data. I am proud of what our Guru's accomplished this quarter, putting us in a great position to succeed going forward.

That said, we now intend to work even harder for our customers and further enhance the PropertyGuru value proposition. I would like to take a few minutes to touch upon current macroeconomic conditions and their impact on PropertyGuru.

In the short term, government fiscal measures to help dampen demand and slow inflation can add to the property market flux. Singapore recently increased taxes and stamp duties, decreased the maximum LTV, loan-to-value ratios on loans and implemented a new 15-month wait period for private buyers of HDD flats. In Vietnam, credit for purchasing homes is now harder to access. In each of these cases, the effect of these actions can lead to reduced real estate activity. For PropertyGuru, this has the potential to impact the wallets of our agent and developer partners, and therefore, the money they spend. However, we remain confident in the underlying strength of the Southeast Asian economies and believe the impact will not be long term in nature.

It is important to point out that a more competitive property market can generate more marketplace activity in the short term as the pool of leads get smaller. With that in mind, we will continue to manage our business to maximize near-term efficiency without sacrificing our long-term growth goals.

At this stage, I did want to briefly touch on each of our larger markets to share highlights from our proprietary property market reports as well as relevant GDP data. The overall economy in Singapore remains strong, with year-over-year GDP growth of 4.4% in the third quarter. In Singapore, although rising rates and government pooling measures can slow real estate sales activity, we are seeing continued resilience. Property prices were up in the quarter as new pricing highs were seen in both our HDB Resale Index and Urban Redevelopment Property Price Index. Of note, younger Singaporeans have begun shifting away from purchasing homes, helping to increase rental price.

The overall Vietnamese economy has seen accelerated growth in 2022 as the country moves past the impact of COVID-19 related lockdowns in 2021. GDP growth in the third quarter was almost 14%. In Vietnam, the government has signaled it will be proactive in combating inflation by further limiting available credit to homeowners and the real estate industry, resulting in slowing transaction volumes. We remain positive on the Vietnam economy long term and believe that the near-term impact of the government's actions may abate in early 2023, with more credit returning to the market.

Finally, the Malaysian economy is showing continued strength, with third quarter GDP up over 14% after single-digit growth in the first half of the year. Elections this past weekend may have had the natural effect of reducing real estate activity in the lead-up. Sales demand in the third quarter declined marginally as inflation and interest rates reduced affordability and general elections occupied the nation. However, pricing was resilient and increased slightly in the quarter.

Now that the election process is complete, we look forward to confidence gradually returning to the Malaysian market.

Let me now turn the call over to Joe to review our financial performance. Thank you.

Thanks, Hari. PropertyGuru delivered another solid quarter, with revenues in the third quarter 2022 of SGD 35 million, up 47% from the third quarter of 2021, and adjusted EBITDA of SGD 5.7 million. Our adjusted EBITDA margin in the quarter was 16.6%, up from a loss last year as we benefit from both growth and prudent spending. Marketplaces revenues were SGD 33 million, up 48%, with a 55% adjusted EBITDA margin. In Singapore, our largest market, we grew the number of agents to 15,351, over 300 more than last quarter. Underscoring the strong value we are bringing to our customers, our renewal rate was 87%, up from an already high 82% in the second quarter, while our average revenue per agent or ARPA was up 24% from last year.

In summary, more agents are joining PropertyGuru, and those that are with us are increasing their spend. For the quarter, Singapore adjusted EBITDA was SGD 13.6 million, representing a 75% margin.

For Vietnam, revenues were up 161% and the number of listings were up 165% as the corresponding quarter in 2021 was impacted by ongoing COVID lockdowns.

Meanwhile, the average revenue per listing grew 2.5% and increased adoption of premium services. We remain excited about the long-term opportunities that Vietnam has to offer, even as the country may be impacted by near-term market headwinds. Vietnam adjusted EBITDA of almost SGD 2 million in the quarter reflected a margin of over 30%.

In Malaysia, revenues were SGD 6.5 million as we continue to leverage our dual brand strategy. Our adjusted EBITDA was SGD 3.2 million for a margin of 49%. Finally, fintech and Data Services combined revenue was up 28% year-on-year and their adjusted EBITDA was a loss of SGD 1.9 million. We continue to invest in these segments, which are core to our longer-term growth strategy.

Moving to the balance sheet. We ended the quarter with SGD 340 million in cash, up from SGD 70 million at the end of 2021, primarily reflecting the proceeds of the listing. This level of available cash gives us comfort at a time of significant change in the market and puts us in a position to take advantage of investment opportunities that can strengthen our business and drive future growth.

As we mentioned in our press release, the results -- result of the uncertainty, especially related to Vietnam and Malaysia, is to take a more cautious view of the market in the near term. Because of this, we revised our outlook for the remainder of 2022. We project full year 2022 revenues will fall into a range between SGD 134 million and SGD 138 million, and adjusted EBITDA will be between SGD 8 million and SGD 12 million. I would just note our forecasted numbers for the remainder of 2022 do not include the impact of SendHelper, our acquisition, although those numbers are expected not to be material. We report our fourth quarter earnings results in early March when we'll provide our outlook for 2023.

Lastly, even with the short-term macro headwinds we discussed, we remain bullish on the long-term prospects for PropertyGuru. The underlying financials of our core markets remain strong as we expect property markets to revert back to more positive longer-term trends once inflationary and monetary policy related headwinds subside. Once this happens, the underlying economic tailwinds in middle class expansion, wealth creation, digitalization and urbanization will return to the forefront.

In addition, we have begun to see valuations moderate and acquisition opportunities increase as private market M&A activity begins to normalize following the events of the past year. With the capital from our listing fully available, we look to put more of it to work in 2023.

While navigating the current environment, we've also remained laser-focused on continuing to invest in technology, automation and the PropertyGuru brand. We understand the importance of building a fiscally responsible and sustainable model that balances growth and expansion with expense management and prudent cost control. Our priorities are clear as we look to build upon our accomplishments to date and drive greater shareholder value.

I would like to finish by thanking our customers for their ongoing support and our gurus for their hard work and commitment. This was another solid quarter of the PropertyGuru as we continue to grow and deliver improved adjusted EBITDA, another stepping stone to our long-term success.

Now I'll turn over -- I'll turn the call over to questions. Operator, we're ready for our first question.

(Operator Instructions) So our first question is going to come from Fawne Jiang of Benchmark.

Congrats on a very strong quarter. Just want to dig a little bit deep into your guidance. I understand some of your markets -- regional markets may see some macro headwinds. Just wonder, by market, how should we look at the trajectory change of your growth, like in 4Q? And in terms of nature of these headwinds, how should we think about 2023? I understand it's a bit early, but any color you could provide in terms of forward, I think, in terms of the determined headwind, that would be helpful.

Thanks, Fawne, for your question. I think in terms of our outlook into Q4 for this year, I think as you've seen this year, some parts of our business are performing better than we hoped, better than our expectations. And in some, certainly, there's been some headwinds and there are some headwinds. We touched on these before, particularly, I think in Vietnam, the availability of credit. This is both for developers and also for consumers, it's pretty challenging at the moment. The government there controls credit in order to dampen demand in the market and reduce inflationary pressures.

So these are -- is a short-term headwind and the policy will change in the future and revert back to normal. And I think the other one for us is the election in Malaysia. Traditionally when you have an election, there's a period of sort of caution comes into the market for both agents and particularly developers. So I think they're sort of holding off, waiting to see the outcome of that before they can get back to normal business. So those are the 2 of them.

And I think overarching also, we do have inflation and interest rates, and these have been sort of shorter-term dampeners. I think we do intend to come back in March next year when we do our full year results, and at that point, we'll be able to take stock of all of the latest macro factors in our markets reflect other things such as ForEx and also impact of SendHelper and any other acquisitions to better inform. But overarchingly, a lot of the factors we're seeing a relatively short to medium term in nature. We've always got these really strong macro tailwinds that we've touched on before, and we'll start to see those coming back to the floor, and then we can continue our sort of accelerated growth pathway.

Understood. My second question is actually on the cost and margin side. You guys delivered very strong bottom line. Like in terms of your annual guidance on the adjusted EBITDA, what are the key drivers we should consider that may drive to the low end versus your high end? At the end of the day, what are the moving parts that could drive the spectrum of your profitability at the end of the year?

Yes. Look, just to that, I think one of the characteristics of our business is we're very well managed on the cost side. We're very prudent, and I think here is a good example of where that comes to the floor. We obviously have a few headwinds and revenue is a little lower than expectations, but we've managed to make up sort of a substantial amount of that in terms of efficiencies and cost savings, et cetera.

I think in terms of our seasonality of our costs, Q4 was 1 big quarter. We have our rewards business, and that drives a fair amount of cost. We do have some seasonal marketing, particularly in relation to brand, et cetera, that is also happening. So that's driving, I guess, an additional cost side into Q4. Our cost forecasting is pretty accurate. It's more just around revenue and seeing quite how some of those factors that we've spoken about before will flow through and then affect the ultimate results. Obviously, a lot of our revenues are very high margin. So small movements in that can affect the bottom line EBITDA, hence the range.

Understood. So notice that across the globe, with increasing the inflation pressure and the potential slowdown top line, a lot of these corporates have adopted cost savings, at least on the corporate level. Just wonder whether you guys tentatively have strategic shifts on cost saving going forward? How should we think about the balance of your top line versus profit growth?

Sure. I mean just to revert back. We've been -- we're very well -- we set ourselves a very well-managed business. And we've been -- we're prudent with our costs, and we're very prudent with the people that we hire. So as a result, I think just refer back to the COVID period, obviously, 1 of the greatest shocks that business has seen in some time, we managed our costs very well during that time, but there were no job cuts, no one's laid off, nothing like that.

So I think we've weathered that storm sort of very well. And I think it just shows the sort of the flexibility and resilience of our model. So we don't envisage things such as anyone being laid off or anything like that, but we will continue to exercise a lot of prudence. We're very careful with our costs and we'll deploy them in order to sort of match the longer-term sort of profitability profile of the business going forward.

Our next question is going to come from Nelson Cheung with Citi.

This is Nelson from Citi. Congratulations on the first strong quarter. So my first question is about your acquisition plan. And can management comment on the synergies with the acquisition of SendHelper? And what will be the current progress of business integration so far? And should we expect a more meaningful financial contribution in future if the business expands beyond Singapore? And are there any potential targets on home services that we are looking at it right now?

Thanks for your question, Nelson. Yes, we are very excited by SendHelper. I mean just to give you a sense there, they're an exciting start-up based here in Singapore. They focus on the market here and really focused on providing more transparency, more quality guarantees, I guess, for tenants and for homeowners when it comes to home services like moving, air conditioner maintenance, handyman services and such. We -- as Joe noted, I think we don't expect material contribution from a revenue perspective within this fiscal year. For next year, I think right now, what we are focused on is investing our high-quality technology into the entrepreneurs.

Entrepreneurs have joined -- of SendHelper have joined our business. And I think we're investing in that business for growth and focusing on building out what we refer to as a trust platform for property trying to make sure that all transactions and all engagements to do the property sector are sort of founded on trusted interactions between stakeholders. So this is definitely an extension of that. It extends our value proposition.

For years now, we've helped a number of people find their homes. And really now it's around, okay, now that you're in your home, how can we help you manage that? How can we extend that trust that we have in our brand to additional services. And I think that's the way we think about it. To be honest, when it comes to home services, for now, we've got our -- our strength and our track record around acquisitions has been in -- successfully integrating these businesses. So we're very focused on integrating this business, making it successful in Singapore.

We would look to see whether it makes sense to extend these offerings to other markets, either by us, SendHelper or by offerings that already exist in some of those markets. These are different markets after all, and we are experts, having been in this region for 15 years now. But I think, right now, we're pretty much laser-focused on home services in Singapore and driving that.

With regards to our M&A strategy, we've sort of talked about that in the past. The adjacencies around data solutions, software products, for enterprise clients, fintech and home services, these are the 4 places we have mentioned in the past. Those remain the focus areas for our corporate development team and our strategy team. We are mapping the markets. As Joe mentioned, valuations have corrected a bit. But at the end, we are much more focused on fundamental strategic fit, quality of team, quality of execution, et cetera.

And I think we will continue to optimize for that and being able to integrate it well. We're in no rush to deploy the capital or acquire businesses. Our core business continues to grow extremely well as you've seen. So I think it's much more about being patient, finding the right opportunities, the right teams, finding a good culture fit and then buying and integrating those businesses.

That's very helpful. And then my second question is about cost and margin. Since we have reported a very solid performance in terms of adjusted EBITDA across major markets, just wanted to understand more about the major cost driver in third quarter, this quarter? And what will be the margin trend going forward, especially for the Vietnam and Malaysia markets because we see a positive adjusted EBITDA this quarter?

Yes. So just to -- I mean, -- in terms of seasonality of costs, we do have sort of different drivers in different quarters, Q4 is a high revenue period for us, but also coincides with our awards business, the peak of that business. And that covers a fair amount of cost of actually sort of delivering those awards. So hence, there is a higher -- it's a lower margin, but a higher sort of cost push into that -- into Q4. And as mentioned earlier, we also have sort of -- we tend to advertise quite heavily into Q4. And we've had a lot of sort of brand activity, so that's also driving additional cost sort of into Q4.

In terms of the profitability, I think Vietnam is operating sort of pretty well. We obviously have had some challenges on the revenue side. But I think costs are under control and would look as revenue improves into next year margins increasing. I think for Malaysia, the merger has been between keeping the 2 brands, but merging the back office has been really successful and probably sort of more successful, we would hope from a cost perspective. So we're very pleased with the level of profitability that we see. And with a high level of market share, the really, really strong organic position and fantastic synergies on the people and technology side, we look forward to really strong margins in that business going forward.

(Operator Instructions) I think Fawne has a follow-up.

Just a quick follow-up here. Hari, I just want to understand the potential dynamics if we're heading to somewhat like say, short, medium-term down cycle. In other markets, typically in a down cycle, you see agency are more conscious about their ROI. So basically, they tend to keep their budget on a top channel and cutting basically the budget on the less -- lower ROI channels that tend to lead to potential consolidation of the market, at least for the top players. I just wonder, for what you have observed now, whether you start to see that play out? Or do you expect that to play out in the Southeast Asian markets? Or you think either the market just like on such a strong macro tailwind that may or may not help you to consolidate market down the road?

Thanks for that question, Fawne. I think you're absolutely right. I think in any sort of down cycle, people do consolidate their spends. That's not unique to the real estate sector. So I think your observation would be correct. For the last 15 years, we've been through multiple cycles in our region. And I think, in each of them, to Joe's point, we've continued to invest in technology, automation, superior products for our customers, and they have sort of rewarded us by increasing our market share at times like that. I think to be candid, when you look at our market share positions in these markets, we're not focused as much on market share as customer satisfaction and driving superior innovation and technology and quality of solutions, quality of trust, those kind of parameters.

So we're really focused on customer success and customer satisfaction, more -- sorry, more so than market share. The other thing I'd say is, as we mentioned in our 3 core markets, Singapore, despite the challenges of increasing interest rates and inflation, the real estate market remains resilient. In Vietnam, the demand remains very strong in our marketplace. And if anything, you see the cooling measures that the governments put in is actually meant to make sure that there isn't an overheat in the market, people don't get to indented. Real estate developers don't get know their heads. They have been tracking real estate markets across Asia and North America, larger markets where the real estate sector has overheated. And obviously, as an emerging economy, they're trying to make sure that prudent decisions are made by both real estate developers as well as consumers.

But what they're also noting through these actions is that fundamentally, the market is hot, the real estate market, and they want to make sure it doesn't overheat. So I think what isn't lost upon us is despite the overall circumstances -- global circumstances of interest rates and inflation, Singapore, Malaysia, Vietnam, all look like strong real estate markets. Now the question on the short term, there might be some impact of these cooling measures as we have noted. But you're absolutely right.

I think that we remain bullish on the macro tailwinds and what they're going to do. But I do believe there's a lot of opportunity beyond the marketplace. Obviously, we are very bullish on our data and software solutions as well as our fintech products. And I think for that, the market share position helps, but it's not sort of on the critical path to satisfy those clients.

(Operator Instructions) We have a follow-up from Nelson.

Just want to follow up on your 2B business initiatives. Given recently repositioning and rebrand our 2B business, wondering if there's any new growth opportunity coming up that will be exciting into next year? And yes, are we going to expect a quicker ramp of this business going into next quarter as well as next year as well?

So, just to clarify, is the question around the brand repositioning and whether that creates new opportunities. Is that your first question?

Yes, that's about the PropertyGuru for Business.

Okay. Got it. Got it. No, I think -- yes, thank you for your question. I think our PropertyGuru for business was really -- is a brand we have rolled out for our B2B clients because we believe there was the opportunity to talk with a single voice to our customer. We have a variety of offerings now, our marketplace products, events and awards, software product, data products, and we thought it's important when we're talking to real estate developers or banks, urban planners, et cetera, that we have some consistency of our solutions that the vast range of products and services we have are delivered in a consistent manner to our customers, making sure that we are sort of learning with our customers, learning from our customers and developing our products consistent with that.

So I think there is nothing new in terms of the product offerings -- sorry, in terms of the business lines rather. But the business lines will be organized around marketplaces, data services and fintech, as we mentioned in the past. And it's more around making sure that the brand positioning is consistent with that.

As we also mentioned -- as I mentioned rather in my opening remarks, the master brand itself has gone to this repositioning of guided by group. And so this aspect of guidance that we want to be your trusted adviser and guiding you through decisions, whether you're a consumer or a B2B client is consistent with our brand. And I think that's more around the promise we're making to our customers. And now obviously, we need to deliver against that promise.

(Operator Instructions) Okay. It looks like we're done with the Q&A. So Hari, we'll turn it back over to you for any final remarks.

Now I just want to thank everyone for joining us today. We look forward to speaking to all of you again next quarter. Thank you so much.