Maybank Research is keeping its "buy" call on co-living operator LHN with an increased target price of 55 cents from 43 cents previously. This comes on the back of the group reporting its FY2024 ended September, which saw promising growth.
Excluding fair value gains and other non-recurring items, FY2024 core PATMI of $29 million beat Maybank's and market's expectation at 116%/106% of full year estimates, respectively. The stellar performance was mainly driven by strong demand for its co-living segment, which achieved a high occupancy rate of 97.5%, coupled with stable rental rates.
The group declared a final dividend and special dividend of 1.0 cent each, taking total payout to 3.0 cents, translating into an attractive yield of 7.0%.
See more: LHN reports higher FY2024 earnings on fair value gains and better operations
Notably, the group's co-living business in Singapore remains the primary growth driver for, with revenue jumping by 85.5% y-o-y to $52.4 million in FY2024. This arose primarily from additional keys at 298 River Valley Road, 99 Rangoon Road and 404 Pasir Panjang Road; full contribution at 2 Mount Elizabeth Link and Lavender Collection; as well as services provided under Coliwoo’s management.
LHN targets to add about 800 new rooms every year via master lease or selective acquisition (including the ongoing conversion of floors in the GSM Building to residential spaces).
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"We understand the property at 55 Tuas South received a Temporary Occupation Permit (TOP) in September 2024 and LHN is looking to sell its 49 strata units with contributions anticipated in FY2025," says analyst Eric Ong in his Dec 2 report.
As part of its long-term strategy to move towards asset-light (or AUM) model, LHN has put up three of its properties (located at 115 Geylang Road, 471 Balestier Road and 404 Pasir Panjang Road) for sale for a combined $120 million.The properties can be acquired individually or collectively as a portfolio, and come with flexible options, including with or without Coliwoo management, or via
the benefit of a master lease.
"The successful sale of these properties will also enable the group to lower its current gearing of 59.6%," notes Ong.
Moving forward, LHN will further expand its co-living portfolio with new developments such as the launch of 48 and 50 Arab Street, the GSM Building at 141 Middle Road and 260 Upper Bukit Timah Road. These properties will add over 250 keys to its current operations.
In line with its capital recycling initiative, the group’s 40% associated company recently sold the car park at Bukit Timah Shopping Centre for $22 million and reinvested in a 50% JV which acquired Wilmar Place at 50 Armenian Street for $26.5 million that will be operated under its Coliwoo brand.
Following its positive profit guidance announcement on Nov 15, shares in LHN has seen quite a jump in the past two weeks, soaring about 20% to trade at 44 cents on Dec 3. Ytd, the stock has gained 34.9%.
