Centurion Corp - Steady Despite Headwinds
- We still expect Centurion to see more downward pressures on rental rates, due to the tepid outlook for the Singaporean construction sector. However we expect its student accommodation sub-segment to be able to support group earnings. Thus, we maintain NEUTRAL with a DCF-based SGD0.39 TP (4% downside).
- The company’s FY16 results were actually impacted by a one-off revaluation loss of > SGD10m. However, NPATMI from its core business rose 8% YoY to SGD38.6m, far outperforming its peers in the industry despite downward pressures on dormitory rent.
Unhampered by headwinds.
- Centurion has expanded its total bedcount in Singapore (for dormitories) to 34,700 beds. Westlite Papan received its temporary occupation permit (TOP) in May 2016, and is currently in the midst of ramping up its occupancy.
- Despite the headwinds and being impacted by a drop in rental rates across the industry, Centurion was still able to maintain an occupancy rate of 95% and average rental rates of SGD270 in Singapore, far outperforming most of its peers.
- We remain cautiously optimistic on the outlook of the workers accommodation business in Singapore.
Building its student accommodation brand, Dwell.
- Centurion has been boosting its bedcount for its student accommodation facilities, mainly in Australia as well as the UK. As of FY16, it has 10 operating assets with a total capacity of 3,208 beds. Education has been a defensive industry, with annual step-up rental rates.
- Going forward, we believe that Centurion may likely invest its resources to add on to its student accommodation portfolio and continue building Dwell, its brand for new dynamic student accommodations.
Maintain NEUTRAL, with a DCF-backed TP of SGD0.39.
- We believe that Centurion would likely be able to weather through such tough times. However, we also think that growth may likely be hampered by the tough economic conditions affecting its workers’ accommodation segment. As a result, we remain NEUTRAL on the stock.