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LHN's FY2025 Profit Paradox · Investor Exchange

• 0:02
  Time for another Investor Exchange Podcast. Here are your hosts, Matt and Sally.
• 0:08
  Okay, let's unpack this. Today, we are diving deep into the full-year FY 2025
• 0:13
  financial results for LHN Limited.
• 0:16
  For those of you who don't follow them closely, they're a Singapore-based group
• 0:20
  focused on real estate, but really their whole thing is space optimization. Right.
• 0:25
  Think co-living spaces, self-storage solutions. They're all about maximizing
• 0:30
  the value of physical space.
• 0:32
  In their latest report, it's a goldmine of complexity.
• 0:36
  It's more than complex. It's a financial riddle.
• 0:39
  You know, the official numbers, the ones that they have to report, they tell one story.
• 0:42
  But when you dig into the actual business, the day-to-day operations,
• 0:46
  it's a completely different picture and frankly, a much, much stronger one. That's exactly it.
• 0:52
  So our mission today is to cut through all that noise, the complex accounting,
• 0:55
  the corporate jargon, to really understand the true operational health of this company.
• 1:00
  We want to see what's actually going on with their strategy and where they're headed.
• 1:03
  And for you, the listener, the puzzle starts right at the top,
• 1:07
  because on one hand, LHN had what looks like a fantastic year.
• 1:12
  Total revenue was up 8.6%. That's another 10.5 million Singapore dollars,
• 1:18
  bringing them to over 130 million. And the gross profit number is even more
• 1:22
  impressive. Oh, massively.
• 1:24
  Gross profits surged by 21.5% up to $75.6 million.
• 1:29
  Those are numbers that suggest the business is absolutely firing on all cylinders. So far, so great.
• 1:35
  And here's the hook, the paradox we need to solve. Despite that incredible performance,
• 1:40
  the number at the very bottom of
• 1:42
  the page, the overall net profit for the year, it just fell off a cliff.
• 1:46
  It really did. It plummeted 55.4%. So it dropped from around $48 million down to just $21 million.
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  How does your core business profit jump 21% but your final profit gets cut in half?
• 1:58
  And that right there is the $28.5 million question, literally.
• 2:04
  To solve it, we have to immediately ignore the official net profit figure and look at something else.
• 2:10
  A number the management team themselves use called adjusted profit before taxation.
• 2:16
  Ah, the adjusted figure. Now, I'm always a little wary of those.
• 2:20
  Are they just, you know, moving the goalposts to make things look better?
• 2:22
  That's a fair challenge and you should be skeptical.
• 2:24
  But in this case, it's totally legitimate. it. They're very clear about what
• 2:28
  they're removing. It's all about stripping out these huge, volatile non-cash
• 2:34
  items that don't reflect the core business's health.
• 2:37
  And when you do that, the picture completely flips. The adjusted profit before
• 2:41
  tax wasn't down. It was up significantly.
• 2:44
  How much up? Up 33.4% year on year to 45.7 million. Wow.
• 2:50
  Okay. So that confirms it. The engine of the business is running stronger than
• 2:53
  ever. Exactly. So what was it?
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  What was that massive non-cash item that caused the 55% drop in the official number?
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  It's almost entirely down to one line item.
• 3:04
  The fair value adjustment on investment properties. Right. This is an accounting
• 3:08
  rule where they have to re-estimate the value of their buildings every year,
• 3:11
  even if they don't sell them.
• 3:12
  Precisely. And in FY 2024, the property market was hot. So they booked a paper gain of $10.5 million.
• 3:20
  That really boosted their profit that year. And I'm guessing in FY 2025,
• 3:24
  the market wasn't quite so hot. Exactly.
• 3:27
  With interest rates up and some uncertainty, valuations cooled off.
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  So that gain completely reversed into a net loss of $18 million.
• 3:36
  So wait, you take the $10.5 million gain they didn't get again this year and
• 3:40
  you add the $18 million loss they did get.
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  And you get a $28.5 million negative swing.
• 3:45
  That's the whole story of the net profit drop. It's a paper loss reflecting
• 3:49
  market sentiment, not a problem with their actual rental income. It is crystal clear.
• 3:54
  Okay, so now that we know the true signal is that 33% jump in adjusted profit,
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  here's where it gets really interesting.
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  Where did that growth actually come from? Well, what's so impressive is that
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  it wasn't just one thing.
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  First off, they launched a brand new business segment. The property development
• 4:11
  business. Yeah, first time ever.
• 4:13
  And it contributed $14.1 million in revenue right out of the gate.
• 4:18
  Mostly from selling some units in Singapore, right?
• 4:21
  At Tua South. That's the one. The initial profit was small, only about $300,000,
• 4:27
  but it proves the concept.
• 4:28
  It's a whole new pillar for growth.
• 4:31
  Okay, and then you have what sounds like a boring, stable business,
• 4:35
  facilities management. You'd think so, but the numbers were explosive.
• 4:39
  Revenue was up a healthy 6% to nearly 38 million new contracts,
• 4:44
  more car park spaces in Singapore.
• 4:47
  But the profit? The profit was astounding. The adjusted profit before tax for
• 4:52
  that segment jumped 110%. 110.
• 4:55
  That's not just winning new business. That's a fundamental shift in efficiency.
• 4:59
  It absolutely is. And a big part of that was a smart strategic move.
• 5:02
  Yeah. They identified their car park business in Hong Kong was losing money. And they cut it loose.
• 5:07
  The lease came up for expiry, and they just walked away.
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  Cut the dead weight, focus their capital on Singapore where the margins are higher.
• 5:15
  That's just smart management. We also saw good growth from their smaller energy
• 5:19
  business up nearly 30 percent and their overall cost of sales went down.
• 5:24
  It did by about 5 percent.
• 5:26
  And that drop is actually a perfect segue into their core business,
• 5:30
  the space optimization segment. How so?
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  Because part of that cost improvement was due to the absence of some big one-time
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  retrofitting costs they had in FY 2024, costs related to their Kaliwu business.
• 5:42
  Right. So let's get into space optimization.
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  This is their bread and butter. Kaliwoo, WorkPlusStore.com.
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  Everything. And again, another paradox. The segment's total revenue was actually
• 5:52
  down a bit, almost 7%. It was.
• 5:54
  But its operational heart, the adjusted profit, was up a phenomenal 47% to $46 million.
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  This segment is the clearest picture of their success. So let's break it down.
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  Let's start with residential property. So the Kaliwu co-living brand. This is the key.
• 6:09
  On paper, revenue for residential decreased by over 10%, a $5.4 million drop.
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  Which, if you were just skimming the report, you'd think, uh-oh,
• 6:20
  the co-living model is in trouble.
• 6:22
  You would. But it's that same story again.
• 6:24
  The decrease was entirely due to the non-recurrence of a one-time payment they
• 6:28
  received back in FY 2024.
• 6:31
  So it was like a big payment for a refurbishment project or something that didn't
• 6:34
  repeat this year. Exactly. It was one-off income.
• 6:37
  Once you strip that out and look at the actual underlying sustainable rental
• 6:41
  business, the performance is stellar.
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  Okay, what's the total number? Kaliwu's adjusted PBT, its operational profit,
• 6:48
  jumped 82.9 percent. 83 percent.
• 6:52
  That is just immense cash flow generation.
• 6:54
  It's incredible. And the proof is in the pudding. You look at their occupancy
• 6:57
  rates. They must be full. Pretty much. Co-living occupancy is at 96.1 percent.
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  And for their industrial properties, the Work Plus Store brand,
• 7:05
  it's basically 100 percent.
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  99 percent occupancy. I mean, in commercial real estate, that's almost unheard
• 7:12
  of. It just shows the incredible demand for what they're offering,
• 7:15
  and they're getting smarter, too.
• 7:17
  What do you mean? They're expanding into higher margin niches,
• 7:20
  not just generic storage, but climate-controlled units, dedicated wine storage,
• 7:25
  things they can charge a premium for. I see.
• 7:29
  Okay, last piece of that puzzle. The commercial properties segment saw a big revenue drop, 26%.
• 7:36
  Another accounting quirk. Another pure accounting quirk.
• 7:40
  This time, it was because more of their subleases were classified as finance leases this year.
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  It just changes how the revenue is recognized on the books. The underlying business is stable.
• 7:50
  To the sum of the financials, a fundamentally strong year with adjusted core
• 7:55
  profits soaring, but it was completely masked by that huge non-cash paper loss.
• 8:01
  That is the core conclusion. And with that strong operational base,
• 8:05
  LHN spent the year making some huge strategic moves to unlock even more value.
• 8:09
  Let's talk about the biggest one, the spinoff and listing of Coligo Holdings.
• 8:13
  Monumental. A landmark deal for them. They spun out their crown jewel,
• 8:16
  the co-living business, and listed it on the Singapore Exchange in November.
• 8:20
  And this wasn't just a paper exercise. They raised serious capital. They did.
• 8:24
  The IPO brought in about $101 million in net proceeds.
• 8:30
  LHN still owns about 65 percent, so they keep control.
• 8:33
  But now Kalawu has this massive independent war chest for expansion.
• 8:39
  So with $100 million in the bank, what's the plan? What's the target?
• 8:43
  It's very ambitious. They had just under 3,000 rooms as of September 2025.
• 8:49
  The goal is to get to nearly 4,000 rooms by the end of 2026.
• 8:53
  That's a 36% increase in rooms in just over a year.
• 8:56
  Yeah, and they have the projects lined up to do it. They're launching Kaliwa
• 8:59
  Midtown with over 200 rooms early in 2026.
• 9:03
  And that big resort-style project, the Chalet conversion. Right, at Jalen Layang Basar.
• 9:08
  That's another 350-plus rooms coming online in the second quarter.
• 9:12
  And they've already got another joint venture to acquire another building.
• 9:15
  The pipeline is full. And it seems like the market is providing some serious
• 9:19
  tailwinds for this whole strategy.
• 9:21
  It really is a perfect storm for their business model.
• 9:24
  The report points to a few key trends.
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  Industrial rents in Singapore, rising for 20 straight quarters.
• 9:32
  Helping work plus store. Exactly.
• 9:34
  New self-storage regulations are also expected to help big established players like them.
• 9:39
  And then on the residential side. Rents are soaring. Soaring. Soaring.
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  Plus, you have this huge surge in tourism and business travel,
• 9:47
  creating this massive demand for flexible living spaces that Kaliwu is perfectly positioned to fill.
• 9:53
  It's a classic case of supply and demand working in their favor. Absolutely.
• 9:57
  And they're being smart about risk, too. Even with their new property development
• 10:01
  arm, they formed a joint venture to redevelop a property on Upper Thompson Road.
• 10:05
  They're not betting the farm on any single project. So with all this operational
• 10:09
  success, how did they treat shareholders? Did the dividend reflect the underlying
• 10:14
  profit or the headline loss?
• 10:16
  Oh, they definitely aligned it with the real performance.
• 10:18
  The total dividend for the year went up from three cents to four Singapore cents
• 10:22
  per share. A 33% increase.
• 10:24
  Exactly. And more importantly, they set a new dividend policy for the future.
• 10:29
  They're targeting a payout of at least 30% of profit, but, and this is key,
• 10:34
  excluding those volatile fair value changes, they're anchoring the dividend
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  to the real sustainable cash flow.
• 10:40
  So what does this all mean? It means FY 2025 was a year where a massive,
• 10:46
  unavoidable accounting adjustment
• 10:47
  completely hid one of LHN's strongest operational years ever. Right.
• 10:52
  Highlighted by that 33% jump in adjusted core profit.
• 10:56
  And at the same time, they pulled off this huge strategic restructuring with
• 11:00
  the Kaliwa spinoff to pour fuel on their growth engine for the next couple of years.
• 11:04
  It's the ultimate example of why you can't just read the headline net profit number.
• 11:07
  You have to dig deeper. And so the immediate question for you,
• 11:10
  the listener, to think about going forward is all about speed.
• 11:13
  The Kaliwu IPO raised $101 million
• 11:16
  in cash. They have a clear target of 4,000 rooms by the end of 2026.
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  So the question is, how quickly can they deploy that capital into new revenue-generating buildings?
• 11:27
  Because that $100 million is the fuel. It's the rocket fuel.
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  And watching how fast they spend it and how well they spend it,
• 11:35
  that's going to be the single best indicator of whether that 83 percent profit
• 11:39
  growth in Kaliwu can accelerate even further.
• 11:42
  A great challenge for us to monitor in the coming quarters. Thank you for walking
• 11:46
  us through those layers and really uncovering the true story here.
• 11:49
  My pleasure. It's always fun to cut through the numbers.