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PhillipCapital starts LHN Limited at 'buy' due to optimistic real estate trends

Felicia Tan
Felicia Tan6/9/2021 04:40 PM GMT+08  • 4 min read
PhillipCapital starts LHN Limited at 'buy' due to optimistic real estate trends
PhillipCapital has given a target price estimate of 54 cents on the counter.
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PhillipCapital analyst Vivian Ye has initiated “buy” on real-estate management group LHN Limited with a target price of 54 cents.

LHN, which was established in 1991, has a track record in the re-purpose and re-leasing of real estate to capture trends.

It is a real-estate management group that generates value through its expertise in space optimisation.

LHN Limited was listed on the SGX-ST’s Catalist board in 2015 and was dual-listed on the mainboard of the Hong Kong Stock Exchange in 2017.

The group repurposes and enhances old, unused and under-utilised industrial, commercial and residential properties into thoughtfully designed and highly useable spaces.

Revenue for the group is derived from three segments: space optimisation, where revenue is primarily generated from rental income including warehouse serving fees; facility management which includes revenue from building maintenance and security services; as well as logistics services which derives revenue from transportation and container storage fees.

In her report on June 7, Ye highlighted three reasons, as to why investors should accumulate the counter.

The group’s nine Work Plus Stores under its space optimisation segment are poised to rise the rise of e-commerce. This comes as online retail sales in Singapore more than doubled from 6.3% of total retail sales in January 2020 to 13.3% in April 2021.

Industrial property rents also rose for the second straight quarter by 0.6% q-o-q in the 1Q2021.

The group has one upcoming facility at 202 Kallang Bahru, which is expected to commence in July 2021. The new facility will add net lettable area (NLA) of 193,000 sq ft or 14% to LHN’s portfolio.

On this, LHN also expects increased demand for its Work Plus Stores from e-commerce retailers and other small- and medium-sized enterprises (SMEs).

LHN’s Coliwoo business, which is also under its space optimisation segment, is thriving with an average occupancy rate of 94% due to the sustainable rise in demand for co-living and serviced residences.

See also: LHN acquires Amber property through JV company for $27 mil

“Tenants are attracted to this segment’s flexible leases of a minimum seven days and reasonable rentals of $1,500 to $2,600 per month, depending on location and property type,” writes Ye.

As at end-FY2020, there were 763 keys in the Coliwoo portfolio.

In 1HFY2021, LHN added to its portfolio 1557 Keppel Road, contributing a further 47 keys.

Another four projects are expected to begin operations in FY2022, which would add another 166 keys to expand LHN’s co-living space offerings.

Ye adds that by the end of FY2022, a total of 210 new keys are expected to be added to LHN’s portfolio.

The expansion of LHN’s facility management, with the acquisition of 33 JTC car parks in February, is also another positive, in Ye’s book.

As at end-1HFY2021, LHN has a total of 74 car parks under its management in Singapore from the 54 as at end-FY2020.

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Car parks at some newly acquired properties such as its Boon Leat property will also be managed by LHN.

The car park at Bukit Timah Shopping Centre was acquired in September 2020 under a joint venture.

On her target price, Ye has based it on LHN’s five-year price-to-earnings ratio (P/E) based on adjusted earnings per share (EPS) varied from four times to 70 times with an average of 32 times.

In her report, Ye has estimated LHN’s EPS to be at 8.3 cents for the FY2021 and adjusted EPS of 5.7 cents in the FY2021.

“Excluding outliers of above 60 times, average P/E was 27 times. Industry is trading at around 19 times FY2021 P/E. We apply a 50% discount owing to a lack of comparables and large volatility in historical P/E. This gives us 9.5 times FY2021 P/E,” she says.

As at 4.37pm, shares in LHN are trading 0.5 cent lower or 1.3% down at 38.5 cents, or 0.8 times P/B, according to PhillipCapital’s estimates.

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