Maybank Securities analysts Li Jialin and Eric Ong have initiated a “buy” call on LHN Limited with a target price of 54 cents.
The analysts’ target price is based on an “undemanding” FY2024 P/E of 8x, which represents a “steep discount” compared to other bigger hospitality players’ average of 15x, write Li and Ong in their July 12 report.
LHN, which owns and operates co-living properties, is poised to rise on the co-living boom. Its co-living brand, Coliwoo, is the largest operator in Singapore by the number of keys.
While in its nascent stage, Li and Ong highlight the potential of co-living, particularly after the Covid-19 pandemic resulted in delays in the completion of residential projects due to manpower shortages and rising construction costs.
“Coupled with soaring rental/hotel rates ([of around] 30%-40% since 2022), this has led to rising demand for interim leasing options, including those in the co-living sector, from both locals and foreigners,” say the analysts.
“We think that co-living leases are an attractive solution as they offer greater flexibility to tenants with their monthly renewal options,” they add.
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LHN may also become a beneficiary of the recent spate of high-profile concerts that have and will be taking place in Singapore, as well as the return of medical tourism.
“With Coldplay, Jacky Cheung and Taylor Swift all having sold-out concerts, these international stars are drawing regional audiences as Singapore is the main stop in Southeast Asia. According to Klook, more than 600,000 fans from across the region have registered interest to buy concert packages for Taylor Swift, which may lead to a rise in short-stay accommodation demand,” note Li and Ong.
“Singapore’s recovering medical tourism also bodes well for LHN, especially its flagship property, Coliwoo Orchard, given its proximity (350m) to Mount Elizabeth Hospital,” they add.
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LHN’s capital recycling initiatives may also drive a re-rating in its share price. In June, the group’s 84.05%-owned subsidiary, LHN Logistics, received an offer from Shanghai-listed company to acquire its logistics and transportation arm at 22.66 cents per share.
If the deal goes through, the transaction is expected to generate cash proceeds of $32 million for LHN.
The deal would also help to unlock shareholder value and enable the group to channel its resources to another core business segment as well as a potential special dividend payout, the analysts point out.
The group has also identified the Golden Mile carpark and a redevelopment project at 55 Tuas South as potential divestments. The carpark at Golden Mile may net the group $40 million while the project in Tuas may net the group $21 million.
In the analysts’ view, upside swing factors include a prolonged lack of new hotels and co-living rooms in Coliwoo’s key locations, more sports and entertainment events, which may create a surge in ad hoc demands from travellers, better-than-expected rental fees and occupancy, as well as the potential disposal of a business segment and value-unlocking divestments.
At the same time, a surge of supply in key locations, the failure to renew the lease for its master-leased assets and elevated interest rates till its next re-financing in FY2024 are downside factors.
As at 9.28am, shares in LHN are trading 1 cent higher or 2.63% up at 39 cents.
