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LHN Limited: First Half 2025 Financial Results · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Welcome back to the Deep Dive. Today, we're slicing into the latest numbers from LHN Limited.
• 0:12
  We've got their interim financial results for the six months ending March 34, 2025.
• 0:18
  That's right. It's basically their report card for the first half of the financial year.
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  We'll dig into how they did compared to last year. Okay, so the plan is sift
• 0:27
  through this announcement, grab the key financial insights, understand why things
• 0:31
  went up or down, and get a feel for their outlook. Trying to get the real story here.
• 0:35
  Exactly. Think of it like getting a snapshot of the company's health,
• 0:39
  what's working well, what's changing. All right, let's start at the top then.
• 0:43
  Revenue. The big picture seems pretty positive. Oh, definitely.
• 0:47
  LHN saw some really significant growth. Revenue climbed from S-54.5 million
• 0:53
  dollars last year to 70.6 million dollars this first half.
• 0:57
  That's a jump of 29.4 percent. Wow. Nearly 30 percent. That's substantial.
• 1:01
  So where did that boost actually come from? I heard there was a new element.
• 1:05
  Yeah, that's a key part of the story. The property development business,
• 1:07
  it basically came online this period, contributing 12.1 million dollars right
• 1:12
  out of the gate. It's first contribution?
• 1:13
  It's made in revenue, yes. Primarily from selling units at their 55 Tua's South Avenue 1 project.
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  So this isn't just growth in existing areas, it's a completely new income stream kicking in.
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  Okay, so that's a big piece. What about their, you know, their established businesses?
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  How did they fare? Like, residential?
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  Residential, which includes their Kaliwu co-living brand, also performed really strongly.
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  Revenue there was up 15.1%, hitting $23.7 million.
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  And the driver for that? It was mainly the Singapore co-living side.
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  They opened new spaces, and crucially, occupancy rates were super high.
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  They reported 97.7% for their Singapore co-living spots.
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  Almost 98%. That's impressive. That kind of occupancy really drives the numbers,
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  doesn't it? Absolutely.
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  Then you have the facilities management business that also saw solid growth,
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  up 12.6% to us $19.4 million.
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  Okay. What was behind that? Mostly winning new facilities management contracts
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  and adding more car park spaces, particularly in Singapore.
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  Interestingly, they did mention they're exiting the Hong Kong car park business,
• 2:17
  but that decision came after this reporting period.
• 2:20
  Ah, okay. So focusing more on Singapore there, perhaps.
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  And industrial properties. Work plus store. That was more stable.
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  A small increase, 2.9%, bringing it to $12.9 million. dollars.
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  Like Kaliwu, occupancy rates are very high there, too, almost 100 percent for
• 2:36
  their work plus store space and over 98 percent for industrial units. Reliable income.
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  So mostly positive stories. But I did see one area take a hit.
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  Commercial properties revenue was down quite a bit. Yes, that number definitely stands out.
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  Commercial revenue dropped sharply by 47.1 percent, down to S1.5 million dollars.
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  But the reason given is a bit technical. How so? It's mainly down to accounting treatment.
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  They talk about more derecognition of revenue from subleases classified as finance leases.
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  Basically, for certain very long-term subleases, the accounting rules change
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  how you recognize the revenue and the asset value over time.
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  So it's not necessarily that tenants left or rents dropped drastically?
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  Not necessarily for their core, shorter-term commercial leasing, no.
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  This de-recognition affects how specific long-term finance lease values are
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  handled on the books in this period versus the last.
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  It's more about the timing and method of revenue recognition under accounting
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  standards for those specific deals. Got it. That clarifies the big drop there.
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  Less about business operations, more about accounting roles.
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  What about the smaller bits, energy and corporate?
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  Energy was pretty steady, around $0.8 million, just a slight dip of 6.9%.
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  Corporate revenue saw a bigger decrease, down 65.7%, which they said was mainly
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  due to lower management fees being charged.
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  Okay, so summing up revenue. Yeah. Strong overall growth, led by that new property
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  development arm, plus solid contributions from co-living and facilities management.
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  Commercial dip, mainly accounting related. That helps frame the top line.
• 4:07
  Exactly. The strategy seems to be working on the revenue front,
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  mixing new development with strong core segments.
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  Right. Let's shift down the income statement then. Profitability and cost.
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  Gross profit was up too, wasn't it? Yes.
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  Gross profit increased by 23.2% to $40.6 million.
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  A healthy rise, though, as you'd expect, maybe lagging that headline revenue
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  growth percentage just a bit.
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  And what drove that gross profit increase?
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  The report specifically points to the strong performance of the co-living business,
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  Kaluwu, and again, those significant sales from the new property development
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  segment. So the main revenue drivers flowed through nicely to gross profit.
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  Now, this next line item looks quite dramatic.
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  Other gains, losses, net and other income. It jumped massively over 100 percent
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  to S11.3 million dollars.
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  Yeah, this is where things outside the main day to day operations can have a big impact.
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  Two main things really boosted this figure. First, remember those finance leases
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  we talked about impacting commercial revenue? The accounting thing. Right.
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  Well, there was a significant gain related to them recorded here.
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  It's complex, but it relates to the difference between the value of the asset
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  removed from the books and the company's net investment in the lease.
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  It's largely a non-cash accounting gain.
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  Okay, so that finance lease item shows up negatively in one place.
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  And positively here. Interesting. What was the second driver? Foreign exchange.
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  Last year, in 1H 2024, they had net FX losses.
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  This year, 1H 2025, they had net FX gains, mainly from revaluing their U.S. dollar balances.
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  That swing from loss to gain also contributed significantly to that S11.3 million dollar jump.
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  So big boosts from non-cash lease accounting and favorable currency moves.
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  Were there things pulling the other way in that line? Yes, a couple of smaller offsets.
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  They had lower interest income compared to last year, and some rental rebates
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  they gave in Hong Kong last year stopped, but those were much smaller than the
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  finance lease and FX gains.
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  Okay, makes sense. So gross profit shows the core.
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  Other gains shows these specific accounting and external factors.
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  Let's look at the costs now. Right.
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  Expenses. Cost of sales went up 38.9% to $29.9 million.
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  This mostly tracks the revenue increase, but crucially, it includes the specific
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  cost of goods sold for those property development units.
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  You sell a property, you have to book the cost of building or acquiring it.
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  Makes sense. You need the cost to match the revenue, especially for a new development. Exactly.
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  Now, selling and distribution costs, those saw a huge percentage jump up 332.3% to $5.2 million.
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  Whoa, what happened there? This ties directly back to that new property development revenue.
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  The report says this increase was primarily due to commission and marketing
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  expenses needed to sell those units at $55 to a south.
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  Launching and selling a new development costs money up front.
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  Ah, the cost of doing business for that new venture. Got it. Incisely.
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  Administrative expenses saw a more moderate rise, up 7.8% to $13.2 million,
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  mostly higher staff costs likely reflecting
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  business growth plus professional fees and other general expenses kind
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  of expected with expansion and finance costs borrowing costs those increased
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  by 5.6 percent to 6.0 million dollars mainly driven by higher interest expenses
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  because they had increased bank borrowings compared to the year before more
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  debt usually means more interest expense okay so revenue and gross profit up
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  but also cost increases, especially selling costs tied to the development.
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  Now, there are a couple of other lines that often cause swings in reported profit,
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  joint ventures, and property valuations.
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  Yes, and these definitely impacted the bottom line this period.
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  Their share of results from associates in joint ventures dropped significantly,
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  down 71.8% to just $1.1 million.
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  Why such a big drop? The main reason cited was LHN's share of a net fair value
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  loss on investment properties held by those JVs.
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  So the properties owned by the joint ventures were valued lower in this period.
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  Ah, so it's a non-cash valuation loss within the JV structure. Exactly.
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  And that contrasts sharply with last year when those same properties saw fair value gain.
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  The report does mention that operating profits from some JVs actually increased,
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  but that improvement was overshadowed by this negative fair value swing.
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  So the underlying JV operations might be okay, but the accounting value change
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  dragged down the reported contribution.
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  That's the picture. And we see a similar theme with LHN's own investment properties.
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  The fair value loss on investment properties they hold directly increased quite
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  a bit, up 108.9% to $7.4 million.
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  Again, primarily due to fair value losses on their leased investment properties,
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  market valuations fluctuate and those changes hit the income statement.
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  So significant non-cash fair value losses hitting both from the JVs and their
• 8:51
  own portfolio this half year. That must have put pressure on the final profit number.
• 8:55
  It certainly did. You had rising costs from growth, particularly the development
• 8:58
  sales costs and the substantial non-cash valuation losses.
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  But despite all that, net profit attributable to equity holders still managed
• 9:06
  to grow by 8.8%, reaching a $16.1 million.
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  OK, so profits still went up despite those headwinds. Yes, and basic earnings
• 9:13
  per share also rose by 6.6% to 3.38 Singapore cents.
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  It suggests the core operations, boosted by the development sales and the strong
• 9:21
  performance in segments like co-living, plus those large other gains,
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  were strong enough to overcome the higher costs and the non-cash valuation hits.
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  So the takeaway on profitability is the underlying business engines seem strong,
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  even if the final reported number gets pushed around by these valuation changes
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  and specific project costs. I think that's a fair summary.
• 9:41
  The operational side looks healthy, generating enough to absorb costs and still
• 9:45
  grow the bottom line, despite the volatility from non-cash items. Good summary.
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  Okay, let's look briefly at the balance sheet and cash flow then.
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  How's their financial position looking?
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  Total assets grew to $715.1 million.
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  Total equity also increased, hitting S268.8 million, mainly thanks to retaining those profits.
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  Liabilities also went up to S446.3 million. And what about their debt levels?
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  Gearing. That's actually a positive story. Their gearing ratio,
• 10:13
  which compares interest-bearing debt to total capital, actually improved slightly.
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  It decreased from 59.6% back in September 2024, down to 58.3% in March 2025.
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  So less reliant on debt relative to their equity base. Slightly less, yes.
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  It happened because equity grew from profits and they also made some debt repayments,
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  slightly reducing the interest-bearing debt amount. Okay. And the net gearing.
• 10:35
  Yeah. Taking cash into account. That improved too, dropping from 51.6% to 49.0%.
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  This reflects both the lower overall gearing and the fact that they had more
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  cash and cash equivalents on hand at the end of the period.
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  So their leverage position looks a bit healthier.
• 10:51
  That's good to see. How did the actual cash move during the period, cash flow?
• 10:55
  Very strong story on the operating side. Cash generated from operating activities
• 10:59
  was S38.0 million dollars.
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  That's a big jump from $14.6 million in the same period last year.
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  Shows the core business is really throwing off cash. That's a key indicator,
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  isn't it? Strong operating cash flow. Definitely.
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  Then, investing activities actually generated cash this period.
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  S2.0 million dollars came in, whereas last year they used $249.0 million. Would cause that swing.
• 11:23
  Mainly cash coming in from finance lease receivables and loan repayments from their joint ventures.
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  These inflows were bigger than the cash they spend on things like property renovations
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  and giving new loans to JVs.
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  Interesting. So cash in from investing this time, what about financing activities?
• 11:38
  Paying back debt, dividends? That's where cash went out.
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  Financing activities used S31.4 million dollars.
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  Last year, financing activities actually brought cash in.
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  This time, the cash was mainly used for repaying bank loans and lease liabilities,
• 11:53
  paying interest, and distributing dividends to shareholders.
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  Okay, so putting it together, strong cash from operations, a bit of cash in
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  from investing activities, which funded cash out for debt repayments and dividends.
• 12:05
  Exactly. And the net result of all that movement, their total cash-in-cash equivalents
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  increased by S8.5 million dollars over the six months, ending at S51.9 million
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  dollars. So they built up their cash pile. Nice cushion.
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  All right, let's pivot to the future. What's the company saying in their business outlook?
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  For their big Kaliwu residential business, they're describing the outlook for
• 12:27
  the rest of 2025 as cautiously optimistic.
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  Okay, what makes them optimistic, even if cautiously so? They point to a couple of market factors.
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  First, private residential rents in Singapore are projected to keep rising maybe 2-4% this year.
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  They think this is partly due to less new housing supply coming onto the market,
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  especially outside central areas, combined with improving economic conditions.
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  Basic supply and demand working in their favor, potentially.
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  That seems to be the view.
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  Second, they're looking at tourism numbers. International visitor arrivals to
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  Singapore are expected to climb again in 2025, maybe hitting 17 to 18.5 million people.
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  They see this driven by new attractions, lots of MEC events.
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  Better flight connections, and strong arrivals from places like China,
• 13:12
  India, Japan, and the U.S.
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  And more visitors means more potential customers for co-living spaces like Kalawu, right?
• 13:19
  That's the connection they're making, yes. Flexible accommodation demand often rises with tourism.
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  And they're not just waiting for the market. They're actively expanding Kaliwu,
• 13:27
  too. What new projects are coming? They just launched Kaliwu Hotel Kampong Glam.
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  They also want a master lease for a big property at 159 Jalan Loyang Bessar,
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  planning a resort-style chalet there.
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  Plus, they expect to launch new sites at Belestier Road and Upper Bukit Timau
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  Road later this financial year.
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  So, new supply coming online from their side, too. OK, so a mix of market tailwinds
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  and their own expansion driving the Kaliwu outlook. Anything on other segments?
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  For Work Plus Store, their industrial space brand, they mentioned adding more
• 13:57
  specialized offerings like air-conditioned storage.
• 13:59
  For the energy business, they feel well-placed for green initiatives,
• 14:03
  expecting more solar contracts and EV charging projects.
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  They seem to anticipate continued growth there.
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  Now, there was also that big potential news about Kaliwu itself announced after
• 14:15
  this reporting period ended. Ah, yes, the potential spinoff.
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  In April, they announced the board is exploring a separate listing for the Kaliwu
• 14:23
  co-living business, potentially on the SGX main board.
• 14:26
  A separate company for Kaliwu. Potentially.
• 14:29
  LHN said they expect to keep a majority stake, so it would likely still be consolidated
• 14:33
  in their overall group accounts, but it would be a distinct,
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  publicly listed entity focused just on co-living.
• 14:40
  That'd sound like a major strategic move if it happens. It would be.
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  But, and this is important, they stressed it's subject to shareholder approval,
• 14:48
  regulatory greenlights, and favorable market conditions.
• 14:51
  Their announcement explicitly says there's no assurance the spinoff will actually go ahead.
• 14:56
  So it's a possibility they're exploring not a definite plan yet. Understood.
• 15:01
  Something significant to watch, but purely potential for now.
• 15:05
  Lastly, did they mention dividends going forward? Yes.
• 15:08
  The board stated an intention to recommend distributing not less than 30% of
• 15:12
  the group's adjusted profit for the full financial year ending September 2025.
• 15:17
  They specify adjusted profit, which typically excludes things like fair value changes and one-offs.
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  For this interim period, they declared a dividend of one Singapore cent per
• 15:27
  share, same as last year. Okay, a policy tied to adjusted profit.
• 15:32
  Consistent interim payout. So overall, the company seemed to expect growth to
• 15:36
  continue. That's the general sentiment, yes.
• 15:38
  They expect contributions from their various segments, particularly the growing
• 15:42
  ones, to keep driving things forward.
• 15:44
  Well, this has been a really thorough deep dive into LHN's first half results.
• 15:48
  Yeah, I think the key themes are clear.
• 15:50
  Strong revenue growth, definitely boosted by that new property development kicking
• 15:54
  in, alongside solid performance from Coliboo and facilities management.
• 15:58
  Profitability grew, too, despite higher costs and those significant non-cash
• 16:02
  evaluation losses helped by strong operations and those other gains.
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  And the financial health looks okay, with gearing slightly down and strong cash
• 16:11
  generation from the core business.
• 16:13
  Exactly. And the outlook, particularly for Kaliwu, seems cautiously positive
• 16:18
  based on market factors and their own expansion plans.
• 16:21
  It paints a picture of a company managing growth and expansion effectively,
• 16:25
  even with some complexity in the reported numbers.
• 16:28
  Okay, so here's something for you, the listener, to think about.
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  With Kaluwu performing so strongly and this potential spinoff now on the table,
• 16:35
  how might separating that business actually change LHN Limited?
• 16:39
  If Kaluwu becomes its own entity, what does that mean for the remaining LHN
• 16:43
  business, its focus, its growth prospects, its overall profile for investors?
• 16:48
  Definitely raises some interesting questions about the future structure.
• 16:51
  It does indeed. Thanks for joining us for this deep dive.
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  Music.