UOB Kay Hian 2015-08-13: Centurion Corp - 2Q15; No Surprises For A Highly Recurring Business. Maintain BUY.

CENTURION CORPORATION LIMITED OU8.SI

No Surprises For A Highly Recurring Business 


RESULTS 

  • 2Q15 net profit jumped 28% yoy to S$9.8m, forming 26% of our and consensus full-year forecasts. The rise in profit was primarily due to: 
    1. student accommodation in the UK which was acquired in Sep 14, 
    2. higher bed occupancy at Westlite Toh Guan dormitory after bed capacity was increased in Jan 14, and 
    3. increased capacity and improved occupancy rates in Malaysia’s workers’ dormitories. 
  • Interim dividend of 0.5 S cents was declared. 

VALUATION 

  • Maintain BUY and DCF-based target price of S$0.725. 

OUR VIEW 


• Westlite Woodlands to start contributing from 3Q-4Q15. 

  • Construction for Westlite Woodlands, a permanent workers’ dormitory with 4,100 beds, was completed in Jul 15 and is expected to start contributing from 3Q-4Q15. 
  • While management remains confident of the demand for this project, it expects a longer period of 6-12 months to fill up the dormitory instead of the usual 6 months. 

• Growing bed capacity in Singapore. 

  • In addition to Westlite Woodlands, Westlite Papan is expected to be completed in mid-16. Hence, Centurion’s bed capacity in Singapore is expected to grow from 23,500 beds as at 30 Jun 15 to 35,500 beds by 2016. (To recap, Westlite Papan is a 51:49% JV between Centurion and Lian Beng, and the project was awarded by the Association of Process Industry (ASPRI). 
  • Given the proximity of the dormitory to Jurong Island and the strong support expected from ASPRI members, we believe Westlite Papan will be well received. 

• Rising supply but expect minimal impact from competition. 

  • Despite 30,000 beds entering the Singapore market over the last three quarters, Centurion’s Singapore portfolio’s occupancy rate has remained robust at more than 95%. 
  • While another 20,000 beds are expected to enter the market in 2H15, management expressed confidence in the demand for its dormitories, given the good quality and strategic locations of its assets, coupled with continued support from the government for purpose-built dormitories. 

• Potential acquisition in the pipeline? 

  • Centurion successfully issued S$65m of 5.25% fixed-rates notes in Jul 15. Coupled with its cash balance of S$80.6m as at 30 Jun 15, we believe there may be a potential acquisition in the pipeline. 
  • To recap, Centurion issued S$100m of 5.25% fixed-rate notes in Oct 13 and subsequently announced the acquisition of RMIT Village student dormitory in Australia in Nov 13.

Loke Chunying | http://research.uobkayhian.com/ UOB Kay Hian Research 2015-08-13
BUY Maintain BUY 0.725 Same 0.725


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