PhillipCapital Research analyst Paul Chew has maintained his “buy” call for LHN Limited with a lower target price (TP) of 47 cents from 51 cents previously, after LHN reported a 63.3% y-o-y surge in FY2022 earnings to $45.8 million.
LHN’s results for the period ended September saw its revenue and adjusted patmi come in at 91% and 100% respectively for Chua’s forecasts for the year. The group’s 2HFY2022 adjusted patmi declined 19% y-o-y to $13.4 million due to the absence of worker dormitory earnings.
Chua says LHN’s co-living business is continuing to grow strongly with 38% y-o-y revenue growth in 2HFY2022, driven by an estimated 25% growth in rooms and a mid-teens rise in room rates. The group’s new capacity additions for the period were 320 Balestier Road, 75 Beach Road, 115 Geylang Road and joint venture (JV) properties at 40 and 42 Amber Road and 471 Balestier Road.
The analyst says that earnings in FY2023 will be supported by an estimated 60% expansion in co-living capacity under the group’s Coliwoo brand by 600 rooms to around 1,600. The new 411 units in Mount Elizabeth will be one of the largest sites for Coliwoo, he adds.
However, facilities management earnings dropped 37% y-o-y in 2HFY2022 to $4.4 million, due to the exit of the dormitory business in mid-2022. The analyst expects the drag from dormitory earnings to persist into 1HFY2023.
Chua’s slightly reduced TP comes off the back of a decline in valuations to LHN’s listed LHN Logistics. Its core business valuations are pegged to a 6.5x FY2023 price-to-earnings ratio (P/E), while the industry is trading at 13x. LHN is also trading at a 35% discount to book value of 45.5 cents, representing a dividend yield of around 6%.
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LHN’s net debt has risen from $63 million to $107 million in FY2022 as a result of $53 million incurred through investment properties. “We expect stability in FY2023 cash flows, as the focus will be on launching and raising occupancy levels of Mount Elizabeth Coliwoo. Bulk of the debt is on fixed rates for the next two years,” he says.
Chua expects 38% of the group’s FY2023 revenue to come from space optimisation in LHN’s industrial, commercial and residential businesses, which will account for 17%, 7% and 14% respectively.
He is forecasting that the facilities management business will account for another 38%, with growth driven by expansion in new car packs under management and more contracts secured. The final 24% of LHN’s revenue next financial year will arrive from its logistics services with the completion of a new International Organization for Standardization (ISO) tank depot in mid-2023.
As at 12.17pm, shares in LHN were trading 0.5 cents or 1.64% down at 30 cents with a dividend yield of 5.42%.
