UOB Kay Hian's Heido Mo has initiated coverage on LHN, which is shaping up to be a market leader in the emerging co-living space property segment.
In her July 4 note, Mo notes that the company has an estimated share of 32% in this market and has a robust pipeline to drive further growth. She has a "buy" call on this stock, with a target price of 55 cents.
As of its 1HFY2Y2023 ended March, LHN derived 75% of its profit before tax from so-called space optimisation business. This refers to how the company recycles under-utilised properties through the acquisition and master leasing of commercial, industrial and residential properties.
A key plank for the company is co-living, which LHN started in 2019. As of 1HFY23, it owned and subleased 17 properties under the Coliwoo brand, with a total of 1,678 keys.
Mo believes that consumer demand remains strong in the co-living segment. Coliwoo caters to a diverse group of tenants such as freelancers, expatriates, exchange students, medical tourists and younger Singaporeans.
Mo notes that Coliwoo competes with established peers such as Ascott’s Lyf and Cove. Yet, with its ability to offer affordable accommodations in good locations with a full suite of room amenities, Coliwoo has built strong occupancy rates of 96.7% as of 1HFY2023, despite the monthly rental of $2,900 to $5,800 per room.
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Mo expects Coliwoo expected to drive LHN's FY23 core earnings by 46% yoy from 70% increase in the number of new keys, through master leases and acquisitions.
The company targets to add around 800 keys per year for the next three years and Mo projects LHN to grow 46% y-o-y for the current FY2023 to reach $25 million.
Her target price of 55 cents is pegged to 9x FY2023 ending September earnings.
She believes that LHN’s current valuation of 6x FY2024 PE and dividend yield of 6.3% are attractive, given the group’s leading market share in the co-living space, robust expansion pipeline and strong EPS growth.
