• In the 1Q24 update, no financials were provided, but LHN reiterated that the occupancy of their portfolio of assets (industrial, commercial, co-living) is over 90%. The two major projects, 55 Tuas South and GSM Building, are proceeding as scheduled.
• On 25 January, LHN secured two sites to provide accommodation for 700 public sector healthcare professionals (mainly nurses and allied health professionals). Operations will commence in 2H24. We believe LHN’s advantage in securing this project is its operational experience in the co-living sector.
• We maintain our forecast and BUY recommendation. Our target price of S$0.39 is unchanged. We peg our valuations to 6.5x FY24e P/E, while the industry is trading around 13x. Earnings visibility has improved as planned projects are underway and occupancy rates remain vibrant. We view the healthcare accommodation project as a new growth driver. Margins are unclear, but the project is capital light as the authorities provide the premises. Eleven more potential sites may be tendered out.

Key Highlights

1. Strong occupancy over 90%. All three assets—industrial, commercial, and coliving—enjoyed over 90% occupancy as of 31 December 2023. The two-week-old and 15th co-living property, Coliwoo Hotel Pasir Panjang, has already achieved 60% occupancy. A larger proportion of tenants are foreigners, mainly professionals and students. The average length of stay is 6 to 9 months. The 15 industrial properties are also 90% occupied with stable rents due to the current demand and supply conditions.

2. Major planned projects are proceeding well. The two upcoming major projects 55 Tuas South and GSM building are developing as scheduled. 55 Tuas was purchased for S$21mn and to be developed into a 49-unit food factory or central kitchen for sale. Completion by August 2024. GSM Building was purchased for S$80mn and can be developed into 187 rooms for co-living with 1 floor commercial. Possible commencement is 2Q25.

3. A new growth driver emerges. On 25 January, LHN secured the contract with MOH Holdings (holding company for Singapore’s public healthcare institutions) to design, retrofit, and operate two lodging facilities for healthcare professionals at 100 Ulu Pandan Road and 60 Boundary Close. It will house 700 healthcare professionals and start operations 2H24. LHN secured two of the five tendered sites. A joint venture between The Assembly Place and the TS Group secured the three other sites to house 1,180 healthcare professionals. There is potential for another 11 sites once MOH monitors the usage of the current five sites. Around 58,000 healthcare professionals (nurses, allied health professionals, and support care) operate hospitals, clinics, and eldercare centres in 2022. The Ministry of Health estimates that this will need to grow to 82,000 by 2030.

Maintain BUY with unchanged TP of S$0.39

Our valuations are pegged to 6.5x FY24e P/E, while the industry trades around 13x. LHN is trading at 5.6x PE, a 37% discount to its book value of S$0.53.

Source: Phillip Capital Research - 8 Mar 2024