Excerpts from analyst's report
NRA Capital analyst: Liu Jinshu
♦ New acquisition extends forward visibility to 2017. LHN announced last month the acquisition of 50% of the carpark at No. 6001 Beach Road, Golden Mile Tower. We estimate that this new property may add about S$0.6m to EBIT, upon completion by the end of FY9/16, suggesting that the company is on track to meeting our EBIT growth forecast of S$1.1m from FY16 in FY17. In the near term, we expect LHN to report a strong set of 3Q FY16 results, following pre-tax profit growth of 30.3% year-on-year in 2Q FY16. Maintain Overweight (high-average return/low risk) with profit visibility stretching from FY16 to FY17. |
♦ New property demonstrates vertical integration strategy. The carpark at No. 6001 Beach Road, Golden Mile Tower has about 540 lots and parking charges are S$1.80 per hour before 6pm and S$2.40 per hour after 6pm.
Assuming an average rate of S$2.00/hour over 20 7-hour days per month, we estimate that this property may yield S$1.8m of revenue per annum, of which 50% will accrue to LHN, translating to a gross yield of about 7% over the consideration of S$26.0m. LHN will also be managing the property as part of its facilities management business. Hence, the operating profitability of this property can be relatively high to LHN.
| LHN | |
| Share price: 14 c |
Fair value: 22.5 c |
♦ Holds en bloc potential. The property is located close to the junction of Beach Road and Jalan Sultan where two newer properties Concourse Skyline (completed in 2014) and KeyPoint (now being redeveloped as City Gate) are located. Leveraging on the theme of the rejuvenation of Beach Road, there is the potential for 6001 Beach Road to be acquired by a developer at a later stage e.g. in a few years.
| ♦ Share price undervalued? |
 "During July, LHN acquired 1.85m shares for about S$0.25m or at average prices of S$0.130 to S$0.133. We are encouraged by the transactions which signal that the company views its share price as undervalued."-- Liu Jinshu (photo) |
♦ Commenced share buybacks in July. At the same time, the shares can be used to reward staff as part of the LHN Performance Share Plan, without diluting existing shareholders.
Based on a share price of S$0.140, LHN trades at approximately 10.4x FY15 earnings per share, but at only 7x FY16 earnings per share. Hence, positive earnings momentum will serve as a potential catalyst for further value discovery in LHN’s share price.
♦ Expect strong 3Q FY16 results. During 1H FY16, LHN made net profit after tax and minority interest of S$4.0m. Based on the momentum shown, we expect the company to make PATMI of more than S$2.0m in 3Q FY16, presenting upside risk to our existing PATMI forecast of S$7.1m.
In this update, we maintain our forecasts and valuation, but reiterate that shareholders can expect higher dividends this year given interim dividend of 0.2 cents against the full year dividend of 0.3 cents for FY15.
Full report here.