The company is keeping its interim dividend at one cent. While LHN has no formal dividend policy, Tang and Mo expect the company to maintain a payout ratio of 40% over the next two years, implying a yield of 5-6%.
LHN attributes the decline to its property development business and facility management business, but partially offset by higher revenue from residential properties and Coliwoo in the space optimisation business.
The company's occupancy remains firm in 1HFY2026, thanks to high occupancy levels across its space optimisation business.
As at end-1HFY2026, LHN's co-living unit Coliwoo, saw its occupancy edge up 0.5ppt q-o-q to 97%.
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Its industrial and Work+Store spaces was up 1.2 ppt q-o-q to 96.5%, and down 0.3ppt q-o-q respectively. Commercial space occupancy, meanwhile, was stable at 84.5%, down 1.5 ppt q-o-q.
"The resilient occupancy rates underscore the defensive, recurring nature of the group’s income base, supported by sustained tenant demand, which is expected to drive growth in the space optimisation business," the analysts state.
The residential properties, under Coliwoo, saw revenue growth of 16% y-o-y to $27.4 million, with more to come as the company is in the midst of renovating 1,021 rooms out of its total of 3,568 rooms. "We expect to see a continued uplift to operating metrics as these rooms come on-stream," state Tang and Mo.
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The industrial & commercial properties were mixed. Industrial properties revenue fell 4% y-o-y to $12.4 million due to higher finance lease classifications, partly offset by a new property; commercial properties revenue was up 54% y-o-y to $2.3 million on fewer finance lease classifications.
Going forward, LHN expects to recognise more revenue from its property development in 2HFY2026.
Also, LHN's facilities management segment is seen to be resilient, with parking expansion and energy growth drive momentum.
Tang and Mo's 71 cents target price is based on 10x FY2027 earnings, which is +1 sd.
"We see limited near-term upside for LHN, as the group remains in a transitional phase following the Coliwoo spin-off and continues to reposition its business mix. We expected better earnings recovery and a stronger forward earnings profile in FY2027," they add.
LHN shares as at 4.04 pm, was up 0.86% to trade at 59 cents.
