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PhillipCapital is upbeat on local co-living operator LHN, as the research house has kept its “buy” call, while raising target price to 42 cents from 39 cents previously.
Analyst Paul Chew says: “We raised our FY2024 earnings by 7% to account for the better-than-expected earnings from Coliwoo… We expect growth to remain stable for LHN in 2HFY2024, supported by stable room rates.”
Chew’s high expectations of the stock comes on the back of its latest 1HFY2024 ended March results announcement, which saw revenue increase by 27.2% y-o-y to $57.5 million, driven by the group’s co-living business, which saw revenue doubled and earnings tripled. Earnings dropped by 23.4% y-o-y to $13.0 million.
The commencement of the 411 keys in Coliwoo Orchard in February 2023 was a major boost to room rates. The residential rental index in Singapore is up 33% over the past two-years but has started to stabilise.
The group’s profit before tax declined 25.0% y-o-y to $15.3 million. Further removing the effect of fair value loss, gain on disposal of associate and discontinued operations from the logistics group, the group would have recorded a 13.7% y-o-y growth in 1HFY2024 adjusted profit before tax to $17.7 million, compared to $15.6 million in 1HFY2023.
Revenue came in within Chew’s expectations, but earnings had exceeded. “Revenue and adjusted PATMI were 51%/65% of our FY2024 forecast, respectively. Margins for co-living were higher than expected due to the high occupancy and room rates,” says Chew.
The way Chew sees it, FY2025 will be a banner year of growth for LHN. The number of keys in co-living will expand by at least 900 (187 in Coliwoo GSM Building and 700 healthcare professionals).
After a stellar rise in residential rents of 50% over the past three years, rents have started to move sideways. Nevertheless, Chew sees that the demand for co-living remains healthy. Demand is now coming from corporate accounts, as Coliwoo focus its marketing efforts on this segment.
Co-living is still more than 50% cheaper than hotels and still provides services (housekeeping) and amenities (cooking, laundry, broadband) to its residents. Another driver is the increased number of residents in the country. In 2023, the population rose by 281,000 to 5.91 million, the highest annual increase on record and 6x the pre-pandemic average of 47,000. LHN targets to grow co-living by 800 keys every year.
In addition, the sale of 49 food processing industrial units will be another one-off gain from the property development business.
The Coliwoo franchise is also scaling up and expanding into third party management contracts. The stock pays a dividend yield of 6% and trades at a P/E of 5.2x and 40% discount-to-book value of 55 cents.
On the other hand, Chew is cautious on the group’s weaker facilities management earnings, which saw a 32% y-o-y decline to $1.7 million despite revenue growth of 14% y-o-y to $17.2 million. The number of car parks under management rose from 74 (about 20,000 lots) to 81 (about 25,000 lots). “We believe the margin weakness was due to a loss of government grants. Nevertheless, the number of car park lots will grow with the recent contract award of another 900 car park lots,” says Chew.
Shars in LHN closed 3% higher on May 23 at 34 cents.
Maybank Securities’ Jarick Seet has maintained his “buy” call and 46 cents target price on Dyna-Mac Holdings NO4 4.05% after Korean shipbuilder Hanwha Group emerged as a new substantial shareholder, taking over from Keppel.
Keppel, having exited the offshore and marine business, has been expected to gradually divest its remaining assets in this industry deemed non-core, including Dyna-Mac.
On May 10, Keppel, which first invested in Dyna-Mac back in 2011 for 35 cents each, sold its stake of 23.9% stake for $100 million, which is at a premium of 10% over last Friday’s market price.
“We believe this is a key positive as it removes an overhang, as Keppel had already stated its intentions to sell all its non-core assets,” says Seet.
Hanwha Ocean provides one-stop solutions for top and bottom structures, including FPSO, which is in the same business as Dyna-Mac.
Seet believes that Hanwha and Dyna-Mac could form partnerships and create synergies that both parties could benefit from in the booming FPSO space.
“Hanwha Ocean’s investment also represents firm confirmation by one of the industry’s largest players of Dyna-Mac’s value and potential,” he adds.
Dyna-Mac’s order book now stands at around $896 million, with deliveries stretching to 2026.
The company’s share price has gained 27.6% year to date and Seet expects that despite so, Dyna-Mac will continue to benefit from the strong demand for FPSO and continue to re-rate as it executes its larger-size contracts and achieves higher profitability.