LHN Limited (LHN SP)
Company Update: 23 December 2021
FY22 set to outshine FY21
- Bottom-line growth. Even though LHN’s FY21 (YE 30 Sep 21) revenue declined 9.9% YoY to S$121mn, net profit increased 16.9% YoY to S$28.9mn.
- Upgraded FY22 portfolio. The 4 residential properties acquired in FY21 and 1 residential property acquired in 1QFY22 are expected to commence operations in FY22. These 5 properties will add a total of approximately 204 keys to LHN’s Residential segment. In addition, full year revenue contribution is expected from the 2 newly acquired JV properties under the Industrial segment.
- Prime area lease: Mount Elizabeth. Through LHN’s subsidiary Erinite Properties, the company has entered into a lease agreement with Eastern Realty for the Mount Elizabeth property, which is due to commence operations at the end of 2022. Approximately 400 keys would be added.
- Potential spin-off. LHN has proposed to spin-off and separate the listing of LHN Logistics on the Catalist board of SGX.
- We maintain an OUTPERFORM recommendation but revised our TP down to S$0.44 based on a lower EPS and an unchanged 6.0x FY22F P/E.
FY21 financials
LHN’s FY21 revenue declined 9.9% YoY to S$121mn, while net profit rose 16.9% YoY to S$28.9mn. This was mainly due to better gross margins (FY20: 47.4%, FY21: 55%), increase in share of results of associates and JVs and the disposal of loss-making sites under the Industrial segment. This resulted in the improvement of net profit margin from 18% in FY20 to 23.2% in FY21. In terms of segmental revenue, Logistics and Facilities Management outperformed, increasing 7.8% and 40.1% respectively. On the other hand, Industrial, Commercial and Residential segment declined 34.3%, 50.4% and 51.8% respectively.
Hot spot: Mount Elizabeth
On 29 November, Erinite Properties, an indirect wholly-owned subsidiary of the company, had entered into a lease agreement with Eastern Realty for the Mount Elizabeth property. It would operate as a mixed development and is due to commence operations at the end of 2022, thereby contributing mostly to FY23’s revenue.
Industrial segment: Heavyweights are removed
Even though Industrial segment revenue declined 34.3% YoY to S$17.7mn in FY21, the segment generated profits of S$10.9mn, a turnaround from its loss-making position in FY20. Bottom-line improved mainly due to net fair value gains from JV properties and the disposal of loss-making sites such as 10 to 40 Tuas. On the other hand, top-line was impacted by the derecognition of revenue due to the expiry of 4 leases.
Moving forward into FY22, we expect full year revenue contribution from the 2 newly acquired JV properties, namely 202 Kallang Bahru and 55 Tuas South Avenue 1, which would accelerate the segment’s net profit growth.
Residential segment: Strength in Coliwoo
Residential segment revenue is broken up into 3 streams: Co-living, 85 SOHO, as well as dormitory set-up and retrofit. Revenue from the overall segment declined 51.8% YoY to S$13.0mn in FY21, mainly attributable to dormitory set-up and retrofit, which plunged 99.7% to S$42k in FY21. LHN’s dormitory income is split into 2 segments, where monthly recurring management fees are recorded under the Facilities segment while one-time dormitory set up and retrofit fees upon new tenders are recorded under the Residential segment.
The company managed to clinch new tenders in FY20 which resulted in a high base. Disregarding dormitory set up and retrofit, Residential segment revenue under co-living increased 19.2% YoY to S$13mn in FY21.
Valuation & Action
We maintain LHN with an Outperform recommendation but revised our TP down to S$0.44 based on a lower EPS. Our TP is based on an unchanged 6.0x FY22F P/E.
Risks
The uncertainty of Covid-19; bottom-line sensitive to fair value gains/losses which are largely fluctuating; higher construction and operating costs.
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