Fun fact: Did you know that if you had bought stocks of LHN Ltd (SGX: 410) 5 years ago, you’d be sitting on a 4-bagger today?
Then again, LHN’s business model has undergone some changes over the past 5 years. Under the tenure of siblings Mr Kelvin Lim and Ms Jess Lim, they have managed to carve out a small niche in space utilisation, expanding beyond its traditional property development business.
It might be a company that has appeared on the headlines multiple times, but not many might know a lot about the company’s full business spectrum.
Business model
The main bulk of LHN’s business model is from its space optimisation vertical, most notably the residential sector, which houses the coliwoo branded co-living space.
The residential segment is the clear outperformer in LHN’s portfolio – achieving a growth of +82.6% YoY. The energy business is also growing at a rapid phase, albeit at a lower revenue contribution.
LHN’s business model skewed towards the asset light spectrum, similar to CapitaLand investment Limited (SGX: 9CI) but at a much smaller scale. It has found a narrow but profitable niche that has benefited from the rising rental rates and hotel accommodation in Singapore. Striking a balance between quality and cosy at the right price for short to mid-term stay, coliwoo hotels and co-living spaces have sprouted rapidly throughout Singapore.
Coliwoo Group spin-off
LHN was in the news recently after the group announced its intention to list the Colliwoo business on SGX. Investors might be curious whether if this move is possible, since LHN is itself already a listed company.
According to news sources, LNH stated that SGX’s regulatory body agrees that the proposed spin-off does not amount to a chain listing, subject to compliance with the local bourse’s listing requirements. A chain listing refers to a situation whereby a subsidiary or parent company of an existing listed issuer is not considered suitable for listing if assets and operations of the applicant are substantially the same as those of the existing issuer.
In simpler terms, you are not allowed to list the exact same business under a different name.
LHN is also considering a dual-listing of the Coliwoo group on the HKEX as well, similar to how its current shares are listed on both SGX and HKEX.
This news might come as a relief to many, as the dwindling numbers of SGX IPOs seem to have raised the attention and concerns of many.
SGX: 410 vs HKG: 1730
Since LHN is dual-listed on both SGX and HKEX, it makes sense for valuation-focused investors to compare the stock’s valuation across both exchanges.
The SGX and HKEX shares of LHN trades rather surprisingly in tandem. The HKEX stock is just a wee bit cheaper than the SGX listed one, at 3.77x versus 4.01x traded on the SGX.
The same observation is made for dividend yield as well. The dividend yield of the HKEX stock trades at a trailing valuation of 4.63% while the SGX stock is at 4.35%.
The HKEX listed stock might be cheaper, but investors who opt for the HKEX stock will need to accept the FX risk, albeit a relatively low one.
Coliwoo spin-off rational
Coliwoo’s explosive growth makes it an attractive candidate for a spin-off—especially in a market like SGX that’s been hungry for fresh IPOs.
There are a few reasons for the Coliwoo spin-off. Although the macro-economic environment is as uncertain as ever, Coliwoo’s Singapore-centric approach offers Singaporeans a safe haven. It still promises growth prospects as its business model proves to be effective and efficient. So if an IPO does materialise, it would be at a relatively premium valuation.
A quick scan on LHN’s balance sheet also shed light on the company’s increasing net debt position. By offering a portion of Coliwoo’s stock to be floated, LHN can raise capital to pare down its debt, and also double down on its residential niche.
That said, if the prospect primarily focuses solely within Singapore, it will quickly hit saturation point in this small island.
This is one of the few deal breaker and pet peeve that I have, especially for Asian companies when it comes to growth prospects. Personally I would want to see tangible growth map outside of Singapore before being certain that the management is not taking this listing to reap a good one-off gain when valuations are high.
LHN on SGX? HKEX? or Coliwoo IPO?
I like LHN’s asset light approach. And I can see the company and management growing out of Singapore with its space optimisation approach for properties where CapitaLand and Mapletree would mostly not bat an eyelid on.
The Lim siblings have shown and proved to be shrewd in manoeuvring the company and pivoting.
LHN’s main prospect lies within Coliwoo’s success story. If Coliwoo can do an CapitaLand Ascott Trust (SGX: HMN) – growing well beyond Singapore, then it is definitely a company to pay attention to.
Else, sticking with the CapitaLand Investment Limited (SGX: 9CI) equivalent, which is relatively cheap and promises at least 4% dividend yield, is a fair deal.
What do you think?
