LHN has undergone several phases of change as the company adapted its focus by diversifying into several businesses to stay relevant. It started in the sawmill and timber trading business, then entered the property sector, where it leased out underutilised spaces. In the early 2000s, the group ventured into space optimisation, logistics services and facilities management.
In a previous interview, Kelvin Lim, executive chairman, executive director and group managing director of LHN, pointed out that LHN has several properties, including industrial, commercial, lifestyle, schools and residential. The diversification is a deliberate choice as Lim does not believe in putting all his eggs in one basket.
Having a foothold in the different market segments will also give the company more flexibility to tap new market trends, such as the growing popularity of co-living.
LHN first entered the co-living space when it leased out its co-living property in Cantonment to Hmlet, which was launched in November 2019. LHN, who owns the master-lease, acts as Hmlet’s landlord for the Cantonment property and was in charge of refurbishing and fitting out the property, while Hmlet manages it. LHN has further expanded since then, acquiring properties all around Singapore, refurbishing them and turning them into its Coliwoo brand of co-living spaces.
LHN stands out among regional co-living operators. While others prefer an asset-light approach with management and operating contracts, Lim, in contrast, chooses ownership of assets. This strategy provides superior control and long-term stability.
“We do this for profit. We are not a start-up. We do things differently from start-ups because we have the capex to spend. We can rent the whole building or even acquire it. It is more sustainable,” says Lim.
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As at the end of FY2023, the company operates a total of 2,064 keys either wholly or as a joint venture (JV).
Growing spaces
In its latest FY2023 ended September 2023, earnings were 16.6% lower y-o-y at $38.2 million, despite revenue increasing by 10.9% y-o-y to $93.6 million. Including discontinued operations, earnings per share for FY2023 came to 9.34 cents, down from 11.21 cents last year.
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Following the disposal of LHN Logistics on Aug 28, LHN recorded earnings of $19.7 million from discontinued operations in FY2023.
The earnings drop in FY2023 was attributed to fair value losses associated with its investment properties and JV investment properties of $8.7 million, compared to the fair value gains of $24.8 million recorded in FY2022. Despite the lower earnings, LHN notes that net cash generated from operating activities increased to approximately $54.2 million for FY2023 compared to $41.2 million for FY2022 due to better working capital management.
LHN also paid out a final dividend of 1 cent and a special dividend of 1 cent, bringing the total paid for FY2023 to 3 cents, up from 1.75 cents paid in the preceding FY2022.
Besides the so-called space optimisation business, LHN also operates a significant facilities management arm – largely in car park management. In FY2023, this segment contributed revenue of $31.34 million, up 14.8% y-o-y. However, profit from facilities management dropped 21.6% y-o-y to $4.83 million.
The company’s primary focus in FY2024 for its space optimisation business will be to identify and capitalise on new opportunities within the sector, particularly in its Coliwoo co-living business sector, which is expected to experience significant growth. LHN will also continue to expand its property development, facilities management and energy businesses.
The Coliwoo brand is expected to see several new launches in 2024, including openings at River Valley, Rangoon Road, Balestier Road, Lavender Street and Arab Street.
Lim says: “Our robust occupancy rates in the Coliwoo projects and successful divestments, like LHN Logistics, underscore our ability to adapt and thrive amidst challenging conditions.”
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With its growing financials, LHN is also making a transit to the mainboard of the Singapore Exchange S68 . It also currently has a dual listing on the Stock Exchange of Hong Kong (SEHK).
As of Jan 23, shares of LHN have grown about 89% in the past five years to trade at 34 cents. The share price is backed by its growing net asset value per share of 45.45 cents at the end of FY2022 to 52.87 cents at the end of FY2023.
Analysts cautiously upbeat
Overall, research analysts have been positive on the stock, with Maybank Securities keeping a “buy” call but most recently cutting its target price down to 45 cents from 54 cents previously. Analysts Li Jialin and Eric Ong view the stock’s valuation as “undemanding”. LHN trades at a forward P/B of 0.63 times and a forward P/E of 7.1 times.
“We remain positive on LHN’s growth strategy, but lower our FY2024–2025 core profit forecasts by 14%–16% to account for a higher-for-longer interest rate scenario,” say Li and Ong.
Phillip Capital has similar sentiments as it keeps its “buy” call but drops its target price to 39 cents from 47 cents. Analyst Paul Chew has lowered estimation for LHN’s FY2024 earnings by 24%, following the disposal of LHN Logistics in August, which led to a $18.1 million gain and a special dividend of one cent.
“Bulk of the proceeds will be redeployed to expand the co-living franchise in Singapore with a target of 800 keys per annum for three years, or 30% CAGR,” says Chew, while noting that room rates have been rising and occupancy remains high at about 94.7%.
Chew adds: “We expect 1HFY2024 growth will be driven by Coliwoo Orchard and additional new projects, 404 Pasir Panjang with 60 keys and 48 and 50 Arab Street with 26 keys. The Pasir Panjang property has been operational since December 2023, while the Arab Street one is expected to begin operations in 2QFY2024.”
On the facilities management side, Chew expects growth in the car park management space, with new locations expected to drive revenue. The industrial segment, however, is expected to see tight supply due to difficulty in obtaining sublet space.
