KGI Securities analyst Megan Choo has initiated coverage on real estate management service group LHN with an “outperform” rating and a target price of 49 cents.

LHN’s primary business involves space optimisation, where old, unused and under-utilised industrial, commercial and residential properties are transformed into highly usable space. The company also has a facilities management segment, as well as a logistic management segment.

See: LHN Group acquires Tuas South industrial property for $21 mil

In a Sept 28 initiation report, Choo highlights that LHN, which currently has five operating residential properties, has acquired four more in 2021, which she expects to provide “solid revenue contribution” for its space optimisation business in FY2022 ending September.

The properties - 40/43 Amber Road, 115 Geylang, 75 Beach Road and 320 Balestier Road - are targeted to commence operations in FY2022. Their performance is expected to be underpinned by the reopening of borders and an increasing trend of self-reliant millennials shifting out of their homes, which will drive higher occupancy. 

“LHN is aggressively expanding its residential property portfolio in Singapore and is targeting to add other 1,000 units within the next three years, including the upcoming units in its recent residential acquisitions,” adds Choo.

She also points out that LHN’s facilities management segment, which comprises cleaning, car park management and security services, is expected to grow in tandem with its primary space optimisation business. In 1HFY2021, the segment grew to contribute 49% of total revenue, driven by LHN’s commencement of dormitory management services in 3Q2020.

Meanwhile, LHN’s logistics management segment, which consists of transportation services in Singapore and container depot management services in Singapore and Thailand, is expected to grow in line with robust shipping activity. She forecasts a 5% compound annual growth rate for Singapore’s freight and logistics maket.

Choo’s target price of 49 cents is six times its FY2022 earnings per share of 8.2 cents.

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Key risks to her rating include a prolonged Covid-19 pandemic that impacts the reopening of borders, a saturated self-storage market, and fair value revaluations of LHN's properties, in tandem with Singapore’s economy and property outlook.

Shares in LHN closed up 0.5 cents or 1.49% higher at 34 cents on Sept 29. 

Photo: LHN