LHN Limited - KGI Securities 2021-09-28: A Diversified Real Estate Management Service Provider

LHN LIMITED (SGX:41O) | SGinvestors.io LHN LIMITED (SGX:41O)

LHN Limited - A Diversified Real Estate Management Service Provider

  • LHN is a real estate management service group which specialises in space optimisation. The company also provide facilities management and logistics services, which complements its space optimisation business.
  • Catalysts. A solid FY22 revenue growth is expected from the space optimization business, given that 4 residential properties are expected to commence operations. Revenue and earnings drivers include reopening of borders and positive momentum of co-living trends. Meanwhile, the facilities management segment is expected to grow in tandem with the space optimization business, coupled with recurring dormitory management income. Finally, the logistics management segment is expected to grow in line with robust shipping activity.
  • We initiate coverage on LHN with an OUTPERFORM recommendation and target price of S$0.49, based on 6.0x FY22F P/E.

LHN Limited - Company overview.

  • LHN Limited (SGX:41O)’s primary business involves space optimization, where old, unused and under-utilised industrial, commercial and residential properties are transformed into highly usable space. LHN’s facilities management segment consists of 3 main areas, namely cleaning, car park management and security services, which complements its space optimization business.
  • In 2020, LHN established a new revenue stream - providing dormitory management services under the facilities management segment. Lastly, the company’s logistics management segment consists of transportation services in Singapore and container depot management services in Singapore and Thailand.

2020 financials: Strong top and bottom line.

  • LHN's revenue increased 20.8% y-o-y to S$134mil in FY20, while net profit surged 183.0% y-o-y to S$24mil. The jump in net profit was mainly due to better gross margins of 47.4%, which was almost double from the prior year. Strong bottom-line was supported by Job Support Scheme (JSS) and rental rebates of S$4.7mil, as well as an investment gain in subleases of S$6.9mil.
  • Eliminating one-off gains, LHN's core PATMI for FY20 stood at S$11.3mil, an increase of 40.9% from FY19.

Facilities management segment spearheading 1H21 growth

  • LHN's revenue rose 24.9% y-o-y to S$64.5mil in 1H21, while net profit jumped 340.3% to S$15.3mil. Solid net profit growth was attributable to further improvement in gross margins, which increased from 47.4% in FY20 to 54.6% in 1H21.

Expansion of residential business.

  • LHN has acquired 4 properties in FY21. The properties acquired were 40/42 Amber Road in June 2021, 115 Geylang and 75 Beach Road in July 2021, and 320 Balestier Road in December 2020. All 4 properties are expected to commence operations in FY22. With the gradual reopening of borders, increased vaccinations rates and an increasing trend among millennials shifting out of their homes, we expect the residential segment to recover going forward.

Facilities management segment: The new winner.

  • LHN's facilities management segment emerged stronger in 1H21, as revenue increased 225.5% y-o-y to S$31.6mil. In terms of revenue contribution, the facilities management segment contributed 49% of total revenue in 1H21, outshining the space optimization business whose contribution to total sales declined from 51.8% in FY20 to 30% in 1H21. The shift in income proportion was mainly due to the commencement of dormitory management services in 3Q20. Being a supplement to the space optimization business, both segments are expected to expand.

LHN - Valuation & Action:

LHN's Singapore peers.

  • LHN’s closest Singapore-listed peer comparisons are Hong Fok Corporation (SGX:H30) and MYP Ltd (SGX:F86). These companies primarily engage in real estate development and management.
    • MYP Ltd (SGX:F86) focuses on investments in real estate and real estate-related assets, with a portfolio encompassing commercial buildings and high-end residential properties. MYP is a small cap stock with a S$105mil market cap and is currently trading at 0.5x historical P/B. Even though MYP is relatively cheaper compared to LHN, which currently trades at 0.9x P/B, MYP has been loss-making for the last 3 financial years. Furthermore, losses at MYP expanded to S$68mil in FY2021. Meanwhile, LHN has been profitable.
    • Hong Fok Corporation (SGX:H30) primarily engages in property investment, property development and construction, property management, investment trading and investment holding and management. Hong Fok is a mid-cap stock with market cap of S$484mil, approximately 5x of LHN, and is currently trading at 0.3x historical P/B. Hong Fok’s revenue has declined over the last 3 financial years. While Hong Fok was profitable in FY2018 and FY2019, it fell into losses in FY2020. In comparison, LHN has reported gradual increase in revenue and profit over the last 3 financial years.


  • Prolonged COVID-19 pandemic to impact reopening of borders, saturated self-storage market, fair value gains/losses sensitive to Singapore’s economy and property outlook.
  • See the 18-page report attached below for complete analysis on LHN.

Megan Choo KGI Securities Research | https://www.kgieworld.sg/ 2021-09-28