Brokers’ take: CGS-CIMB initiates coverage on LHN Logistics with ‘add’, S$0.22 target price

CGS-CIMB is positive on LHN Logistics as it projects earnings growth for the logistics arm of LHN in the near term amid recovering trade activity. 

In a report on Thursday (Jun 2), analyst Kenneth Tan initiated coverage on the group with an “add” call and target price of S$0.22, which implies a 50 per cent market size discount to peers based on its valuation of 9 times CGS-CIMB’s price-to-earnings estimates for 2023. 

Tan projects the group’s commencement of its ISO tank depot, which is slated to commence operations by end-H1 FY2023, to drive LHN Logistics’ revenue compound annual growth rate up by 28 per cent from the current fiscal year until FY2024. 

“With the new depot, LHN Logistics will offer storage services (dangerous goods included), and washing and miscellaneous services,” noted the analyst, who believes this will be an industry first in Singapore and will therefore enable quick depot utilisation ramp-up.

In Tan’s view, the group should also benefit from continued growth in chemical volumes as well as enhanced cross-border trucking services from a new vehicle fleet which LHN Logistics intends to acquire. 

With South-east Asia returning to pre-Covid normalcy, Tan expects heightened trade activity to support demand for container services - particularly for Thailand as the group ramps up its utilisation of its depot in Bangkok. 

He forecasts Thailand’s depot utilisation to hit 7 per cent in FY2022, and rise further to 12 per cent in FY2023 and 15 per cent in FY2024.

As for the group’s Singapore depot, Tan is expecting the group’s twenty-foot equivalent units (TEUs) to be “well anchored” by its key clients - such as Maersk - with whom LHN Logistics is believed to have “good relationships” with. He also believes rental savings may be achieved upon completion of the planned consolidation of the Singapore depot. 

Further potential upsides to the stock include greater investments into sustainability projects, which could grow demand for high-value specialty chemicals and attract greater capital expenditure spend into Jurong Island. 

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Such developments would support higher demand for the group’s ISO tank transportation services, said Tan. 

As at 11.50 am on Friday, shares of Catalist-listed LHN Logistics were trading flat at S$0.14.