LHN Limited ("the Company") is placing out 73,913,000 placement shares at $0.23 each with no public tranche for a listing on Catalist. The IPO will close on 9 April 12 pm and starts trading on 13 April. The market cap will be ~$83.2m. The Company is a real estate management services group with the expertise in optimizing space for its landlords and tenants.
The Company currently manages 36 commercial, industrial and residential properties in Singapore and a commercial property in Indonesia and a resident property in Myanmar.
Business Plans and Future Plans
- Grow the property portfolio
- Acquire its own properties
- Expand its logistics services and facilities management businesses
- Get into new markets in ASEAN
- Develop its technological capability
Before and After
The Company is probably similar to a "fatting" centre where the net lettable area become "bigger" post transformation. The series of before and after photos copied here for your convenience.
The revenue and profit growth for the last 3 years looked quite impressive on paper. Using the most conservative EPS of 1.94 cents, the Company is listing at a historical PER of around 11.8x, but if i include the fair value gains of properties, the historical PER will be around 6.5x. The adjusted unaudited NTA per share is around 12.09 cents versus the IPO price of 23 cents.
Use of Proceeds
The use of proceeds is tabled below for your reference.
The Company intends to distribute dividends of at least 20% of its net profit after tax for FY2015, and FY2016. Assuming EPS remains at 3.53 cents, that will translate into a dividend of 0.706 cents or 3%.
What i like about the Company
- A pretty interesting company that become the master lessee and then maximizing the potential of the properties. In a space constrained Singapore, this seemed to be a viable business.
- Management team seemed to have established a good track record
- Recurring and stable rental income
- In the long run, once they have build up a sizeable portfolio of assets, it is possible to convert some of their properties into REIT to recycle the capital and earn management fees
- Reasonable IPO valuation
Some of my concerns
- Dependent on the health of the rental property market in Singapore
- The landlords may not renew the lease with the Company or may increase the master rental after the properties have been optimized.
- Heavily dependent on 3 suppliers (HDB, SLA and Transurban) but the share of revenue from these 3 suppliers has steadily declined from 72.6% in FY2012 to 58.2% in FY2014.
- Family owned and fallout between the siblings who will own a combined 76.1% of the Company
- I am actually not too concerned about the pre-IPO investors as their entry price is around 17.83 cents and they hold a small stake
My fair value and ratings
I actually quite like the Company but too bad there is no public tranche. Hence i will "punish" it with a one chilli rating. Assuming a fair value of 6-8x, using the historical financials, i will attribute a fair value of 21 to 28 cents. If the Company is able to deliver a 20% growth to its FY2015 results, the fair value will be around 25 to 34 cents. (Please note that I am not privy to the FY2015 results)
Happy watching from the sidelines. Mr IPO is not vested and is trying to see how he can lay hands onto the shares since this is the first IPO of 2015.... ^_^