RHB Securities 2015-08-13: Centurion Corporation Limited - 2Q15; Another Excellent Quarter. Maintain BUY.


Another Excellent Quarter 

  • 2Q15 topline and NPAT grew 33% and 30% YoY respectively, with 1H15 NPAT making up 53% of our FY15 estimate. 
  • Stable occupancy rates and rent across all accommodations led to such positive results. 
  • However, given the uncertainty of its Tuas renewal, we remove Tuas contributions from 2Q17 onwards from our earnings estimates. 
  • Maintain BUY with our DCF-based TP (WACC: 7.6%, TG: 1.2%) lowered by 13% to SGD0.65 (35% upside)

 Singapore dormitory scene still stable. 

  • About 30,000 beds were added from 4Q14 to 1H15, and management expects another 18,000 beds to enter the local market by end-2H15, while 10,000 beds have expired and not been renewed. 
  • Overall occupancy remained well over 95% while rental rates remained stable at around SGD280- 300/bed/month. 

 Earnings in Malaysia to be reinvested. 

  • Management holds a long-term view on Malaysia and stated that earnings from Malaysia will likely be reinvested in Malaysia, especially for its upcoming new dormitories. 
  • Overall occupancy in Malaysia has exceeded 90% with average rental rates inching up to above MYR100 per bed. 

 Woodlands dormitory in ramp-up phase. 

  • The new Woodlands dormitory has started operations since April and is currently in the phase of ramping up its occupancy. 
  • Management expects the ramp-up to be completed in the next 6-12 months and rental rates are set between SGD260 and SGD280/bed/month, with promotions currently ongoing. 

 Expansion plans robust – outlook positive. 

  • With new projects in the pipelines for both Singapore and Malaysia, management expects total bed count to increase to 55,600 in 2015 and 63,500 in 2016. 
  • Despite fears of excess supply affecting the dormitory scene in Singapore, rental and occupancy rates have so far held up quite well as evidenced by its recent results, and such strong growth could sustain going forward. 
  • However, due to the uncertainty of its Tuas renewal, we decided to be prudent and remove contributions from Tuas from 2Q17 onwards from our estimates, resulting in our DCF-based TP (WACC: 7.6%, TG: 1.5%) falling 13% to SGD0.65 (from SGD0.75).

Jarick Seet | http://www.rhbgroub.com/ RHB Securities 2015-08-13
BUY Maintain BUY 0.65 Down 0.75