HK $2.03 (S$0.35) vs SGX $0.385
INITIATE COVERAGE
LHN (LHN SP)
BUY | Price/Tgt: S$0.365/S$0.549 | Mkt Cap: S$149.3m
Market Leader In Co-living Space Upside From More Value Unlocking
LHN has established itself as the market leader in the newly emerged co-living sector in Singapore with a 32% market share and has a robust growth pipeline. Demand for co-living space is expected to be driven by recovering foreign demand. We expect about 70% increase in the number of co-living keys to drive LHN&rsquo s FY23 core earnings by 46% yoy. More value unlocking activities after the divestment of the logistics business may lead to higher special dividends. Initiate coverage with BUY. Target price: S$0.549.
· Real estate management group with market-leading position in the co-living space. Founded in 1991, LHN is an integrated real estate management company with a focus on the property leasing business. In 1HFY23, LHN derived the majority (75%) of its PBT from the space optimisation business, which focuses on recycling under-utilised properties through the acquisition and master leasing of commercial, industrial and residential properties. Through thoughtful design and spatial planning, LHN grows these properties&rsquo net lettable area and potential rental yield. LHN entered the co-living space in 2019 and has become the market leader in Singapore with a 32% market share. As of 1HFY23, it owned and subleased 17 properties under the Coliwoo brand, with a total of 1,678 keys.
· Coliwoo expected to drive FY23 core earnings by 46% yoy from 70% increase in number of new keys. Coliwoo caters to a diverse group of tenants such as freelancers, expatriates, exchange students, medical tourists and younger Singaporeans. Despite competing with established peers such as Ascott&rsquo s Lyf and Cove, Coliwoo stands out with its ability to offer accommodations in good locations with a full suite of room amenities at an affordable rate. LHN&rsquo s growth strategy is to expand its current property portfolio through master leases and acquisitions, and targets to add around 800 keys per year for the next three years. LHN&rsquo s FY21/FY22 earnings of S$6.5m/S$3.5m from Coliwoo are made up of 976/1,602 keys respectively which will increase by about 700 keys (+44% yoy) by end-FY23. As the new keys will take 6-9 months to reach steady state, we expect FY24/25&rsquo s Coliwoo earnings to grow 211%/76% yoy to S$11.0m/S$19.4m respectively. This will likely lift LHN&rsquo s FY23 core earnings by 46% yoy to S$25m.
· Value unlocking of more assets and moving to an asset-light model could lead to more special dividends. In the 1HFY23 results press release, LHN highlighted that it is exploring options to further enhance shareholder value and is considering capital recycling to move towards an asset-light model. On 9 Jun 23, LHN received an offer to take over its 84%-owned subsidiary LHN Logistics. This is expected to generate a disposal gain of S$21m and cash proceeds of S$32m (21% of LHN&rsquo s market cap). LHN owns 12 properties, estimated to be worth S$178m as of FY22, which could be divested to unlock more value. We have not factored any special dividend into our estimates.
· Initiate coverage with BUY and a target price of S$0.549, pegged to 9x FY23F PE (based on long-term mean PE). We think that LHN&rsquo s current valuation of 6x FY24F PE and dividend yield of 6.3% are attractive, given the group&rsquo s leading market share in the co-living space, robust expansion pipeline and strong EPS growth.
LHN (LHN SP)
BUY | Price/Tgt: S$0.365/S$0.549 | Mkt Cap: S$149.3m
Market Leader In Co-living Space Upside From More Value Unlocking
LHN has established itself as the market leader in the newly emerged co-living sector in Singapore with a 32% market share and has a robust growth pipeline. Demand for co-living space is expected to be driven by recovering foreign demand. We expect about 70% increase in the number of co-living keys to drive LHN&rsquo s FY23 core earnings by 46% yoy. More value unlocking activities after the divestment of the logistics business may lead to higher special dividends. Initiate coverage with BUY. Target price: S$0.549.
· Real estate management group with market-leading position in the co-living space. Founded in 1991, LHN is an integrated real estate management company with a focus on the property leasing business. In 1HFY23, LHN derived the majority (75%) of its PBT from the space optimisation business, which focuses on recycling under-utilised properties through the acquisition and master leasing of commercial, industrial and residential properties. Through thoughtful design and spatial planning, LHN grows these properties&rsquo net lettable area and potential rental yield. LHN entered the co-living space in 2019 and has become the market leader in Singapore with a 32% market share. As of 1HFY23, it owned and subleased 17 properties under the Coliwoo brand, with a total of 1,678 keys.
· Coliwoo expected to drive FY23 core earnings by 46% yoy from 70% increase in number of new keys. Coliwoo caters to a diverse group of tenants such as freelancers, expatriates, exchange students, medical tourists and younger Singaporeans. Despite competing with established peers such as Ascott&rsquo s Lyf and Cove, Coliwoo stands out with its ability to offer accommodations in good locations with a full suite of room amenities at an affordable rate. LHN&rsquo s growth strategy is to expand its current property portfolio through master leases and acquisitions, and targets to add around 800 keys per year for the next three years. LHN&rsquo s FY21/FY22 earnings of S$6.5m/S$3.5m from Coliwoo are made up of 976/1,602 keys respectively which will increase by about 700 keys (+44% yoy) by end-FY23. As the new keys will take 6-9 months to reach steady state, we expect FY24/25&rsquo s Coliwoo earnings to grow 211%/76% yoy to S$11.0m/S$19.4m respectively. This will likely lift LHN&rsquo s FY23 core earnings by 46% yoy to S$25m.
· Value unlocking of more assets and moving to an asset-light model could lead to more special dividends. In the 1HFY23 results press release, LHN highlighted that it is exploring options to further enhance shareholder value and is considering capital recycling to move towards an asset-light model. On 9 Jun 23, LHN received an offer to take over its 84%-owned subsidiary LHN Logistics. This is expected to generate a disposal gain of S$21m and cash proceeds of S$32m (21% of LHN&rsquo s market cap). LHN owns 12 properties, estimated to be worth S$178m as of FY22, which could be divested to unlock more value. We have not factored any special dividend into our estimates.
· Initiate coverage with BUY and a target price of S$0.549, pegged to 9x FY23F PE (based on long-term mean PE). We think that LHN&rsquo s current valuation of 6x FY24F PE and dividend yield of 6.3% are attractive, given the group&rsquo s leading market share in the co-living space, robust expansion pipeline and strong EPS growth.
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