CGS-CIMB Research analyst Kenneth Tan has maintained his “add” rating for LHN Logistics with an increased target price of 18 cents, up from 16 cents previously.

In his report dated May 2, Tan notes that while LHN Logistics saw weaker revenue in 1HFY2023 ended March for both its transportation and container services segments, the company was able to record a core net profit of $2.0 million, a 422% h-o-h and 28% y-o-y increase.

According to the analyst, LHN Logistics’ profit for the period — boosted by tax credits of some $0.3 million — came in above his expectations and formed 68% of his FY2023 forecast.

Meanwhile, revenue declined to $12.7 million, 6% lower y-o-y, as both the company’s transportation and container services recorded weaker volumes handled.

Excluding one-off IPO expenses of $0.9 million incurred in 1HFY2022, LHN Logistics’ operating profit margin (OPM) for 1HFY2023 0.8% points y-o-y due to higher staffing costs incurred from higher headcount and wage increments.

For the period, revenue from LHN Logistics’ container depot services declined to $4.5 million, 5% lower y-o-y, which Tan has attributed to the normalisation of container services demand. “The group remains cautious on near-term volumes given weakening macro conditions, which have impacted end demand, and has raised prices slightly in 1HFY2023,” says Tan.

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Meanwhile, he adds that LHN Logistics’ new depot in Myanmar, which opened in 2HFY2022, is profitable and seeing “good volume ramp-up”. The group is actively looking for expansion opportunities within Asean, according to the analyst.

Trucking revenue also declined to $5.2 million, 11% lower y-o-y, in 1HFY2023 as operations were disrupted by the company’s ISO tank depot construction works, which have been delayed.

Tan says he expects these disruptions to ease when depot operations start, which LHN Logistics says will commence operations in 4QFY2023 at the earliest.

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The depot will initially only offer storage services, before introducing washing services later, depending on the pace of equipment installation. Tan has forecasted “minimal” revenue contribution from the depot in FY2023, before rising to $5.2 million and $9.5 million in FY2024 and FY2025 as volumes gain traction and washing services commence.

As a result, Tan has cut his FY2023 to FY2025 revenue by 11% to 22% to factor in the delayed start of ISO tank washing services and the weaker container services demand.  He has also factored in lower effective tax rates in FY2023 to FY2024 given the deferred tax recognition.

Meanwhile, he has raised his FY2023 to FY2025 associates’ profits by 20% to 50% to account for stronger performance from key associate HLA Logistics.

The analyst has retained his “add” call, as he expects quicker earnings growth upon the ramp-up of LHN Logistics’ new initiatives, including the ISO tank depot and Myanmar container depot.

His target price has been raised slightly to 18 cents as he has rolled over his valuation to an 8x FY2024 price-to-earnings ratio (P/E), based on an estimated 40% size discount.

Tan’s re-rating catalysts include a quicker ramp-up of the ISO tank depot and a faster recovery in container trade activities, while downside risks include recession risks and further delays in construction of the ISO tank depot.

As at 1.46pm, shares in LHN Logistics were trading flat at 16.1 cents.

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CGS-CIMB maintains 'add' for LHN Logistics, ups TP to 18 cents

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