LHN eyes growth and valuations with spin-off and listing of logistics arm

CATALIST-LISTED LHN Limited's spin-off and listing of its logistics arm LHN Logistics would give the logistics unit resources to grow and also provide greater clarity for investors to value its property and logistics segments, said Kelvin Lim, executive chairman of both entities.

Speaking to The Business Times in an interview, Lim said that the exercise is "more a restructuring rather than a fundraising", and noted that LHN Limited has been listed for many years, but its price-to-earnings ratio (PE) is "not doing great".

The group currently trades at a trailing PE ratio of around 4.8, and Phillip Securities analyst Vivian Ye had noted in Dec that it was trading lower than its peer average.

Lim added that investors think they are "neither a property service company nor a logistics company".

"This restructuring will bring us very clear identity. LHN Limited will be a property service company with investment in logistics business," he said. "We may get better PE, because our identity is very clear now."

Beyond valuations, Lim noted that LHN Limited's property business requires a lot of funding, and the logistics arm had to grow organically. Spinning off the logistics business would allow it to grow independently and raise funds on its own.

LHN Logistics lodged its final offer document on Apr 19, with plans to raise gross proceeds of S$5 million from the placement of 25.2 million shares at S$0.20 apiece.

Its Catalist listing is expected to take place on Apr 29, and LHN Limited will be the controlling shareholder, holding a stake of around 84.1 per cent.

When asked if LHN Limited had considered distributing its stake to shareholders via a distribution-in-specie (DIS), Lim said it is "still immature to distribute" as they "still have a lot of growth potential".

They could consider a DIS in the future, but he added that the current objective was to get a minimum placement and the restructuring done.

"We want to show the market that we are able to improve the financials of the logistics group before we do further corporate exercise," he said.

LHN Logistics operates in 2 business segments. Under the larger transportation segment, it operates prime movers and trailers to provide ISO tank and container transportation services.

ISO tanks are containers built based on standards by the International Organization for Standardization (ISO) to carry liquids in bulk.

Its other business segment involves container depot services.

The net proceeds of around S$3.6 million, after listing expenses, would be used to partially finance an ISO tank depot at 7 Gul Avenue, expand its transportation fleet and acquire moving equipment.

Singapore accounted for nearly 80 per cent of the group's S$27.2 million revenue last year, and LHN Logistics expects this to grow after the completion of the ISO tank depot in FY23.

The new depot - which allows for washing, repair and maintenance of ISO tanks, and for storage of tanks laden with chemicals - complements its transportation business.

Its transportation segment also operates in Malaysia, with revenue there growing from S$784,000 in FY19 to S$2.1 million in FY21, and the group is planning to expand its prime mover fleet size there.

In Thailand, the group operates container depots, which has generated steady revenue of around S$4 million in the past 3 financial years. Financial controller Khaw Shee Kai noted that the Thai subsidiary has been profitable - despite the current low utilisation rate of under 20 per cent - and they believe an increase in utilisation in future could raise profits as the fixed overheads have already been covered.

LHN Logistics' earnings per share rose 16.5 per cent on year to S$0.0198 in FY21, based on the enlarged share capital of 167.7 million shares post-placement.

For its dividend policy over the next 3 financial years, the group intends to distribute at least 40 per cent of net profit. The net profit for FY22 would be computed after adding back listing expenses.

LHN Limited shares closed at S$0.345 on Wednesday (Apr 20), up 4.5 per cent.