Analysts initiate coverage on LHN, as it dominates Singapore's co-living segment

Analysts have set their eyes on LHN and its growing co-living segment.

As co-living properties owner and operator LHN expands its presence in Singapore to ride on the co-living boom, analysts are taking notice and are initiating their coverage on the stock.

See: LHN confident about outlook as it rides co-living boom

Lim & Tan Securities, as well as UOB Kay Hian (UOBKH) have both initiated “buy” calls on LHN with target prices of 50 cents and 55 cents, respectively.

For Lim & Tan, analysts Nicholas Yon and Chan En Jie are upbeat on the face that LHN’s co-living business – Coliwoo – is poised to be the key growth driver over the next few years with positive uplifts in demand, significant increases in capacities and higher room rates.

Higher residential rents and the return of foreigners have propped up demand for co-living spaces. As the market leader with 32% share, Coliwoo sees strong occupancy rates of 96.7% despite elevated monthly pricing of about $2,900 to $5,800.

FY2022 ended September 2022’s capacity of 1,015 keys will be boosted by about 663 keys by end of FY2023 and management targets to add at least 800 rooms per year for the next three years.

Meanwhile, LHN has a track record in buying underutilised properties or undervalued investments and selling them for a premium, such as the sale of Coliwoo Hotel Amber for $46.6 million in November 2022 (purchased for $27 million in March 2021) and GetGo Technologies for $7.9 million in September 2022 (invested $40,000).

“Their solid track record of asset recycling initiatives to enhance return on equity (ROE) for shareholders has allowed the market to re-rate its shares closer to its intrinsic value as well as allow management to implement a new dividend policy to distribute at least 30% of recurring earnings as dividends,” say the analysts.

“A potential divestment of the 540-lots Golden Mile Tower carpark and the strata unit sale of food processing industrial building at 55 Tuas South can provide attractive gains and boost FY2023/FY2024 earnings,” they add.

Management has given a special dividend via the IPO of LHN Logistics last year, and with the upcoming complete disposal of LHN Logistics in Aug, Yon and Chan believe that there is a good chance for another special dividend given the huge one-off gain of $21 million or 5.1 cents per share, along with incoming proceeds of $31.9 million or 7.8 cents per share.

According to Yon and Chan, LHN trades at distressed valuations at 5.4x core forward P/E and 0.7x P/B for a growth company with sustainable cash flows, backed by a dividend yield of 6.3% based on 2.3 cents per share. Compared to property peers, this implies a deep discount to larger and more established firms such as UOL and CDL who are trading at 14-15x forward P/E and has a much lower yield of 2.8% to 4.1%.