CENTURION CORP - UOB Kay Hian 2015-09-18: A Recurring Revenue Stream At A Steal

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CENTURION CORPORATION LIMITED OU8.SI 

CENTURION CORP (CENT SP) A Recurring Revenue Stream At A Steal 

VALUATION 

• Maintain BUY but with a slightly lower DCF-based target price of S$0.69 (previously S$0.725 (-4.8%)), as we adjust our earnings forecasts to account for the higher financing costs and increase our cost of equity to account for the greater uncertainty in the macro environment. 

INVESTMENT HIGHLIGHTS 

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

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

• Potential acquisition in the pipeline? 

• Centurion successfully issued S$65m of 5.25% fixed rates notes in Jul 15. In view of this, coupled with its cash balance of S$80.6m in its balance sheet, 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. 

• Expect another year of growth in FY16. 

• Going into 2016, we expect earnings growth to be driven by a full-year contribution from Woodlands which was completed in Jul 15, and a contribution from Westlite Papan (51%-owned) which is expected to be completed by mid-16. 

• Price support from share buy-backs. 

• Centurion has recently repurchased about 2.8m shares from the market at an average price of S$0.42/share. 

• Raise our dividend payout forecast. 

• In its 2Q15 financial results announcement, Centurion announced an interim dividend of S$0.005. We see this as a return of value to shareholders which we believe investors may appreciate with the kind of recurring income streams that Centurion has. 

• Lower our 2015-17 net profit forecasts by 5-8% 

• as we factor in the higher interest expense from the issue of the S$65m fixed rate notes (interest rate: 5.25%) in Jul 15, and assume a slower take-up at Woodlands,. 

• Maintain BUY with a slightly lower DCF-based target price of S$0.69. 

• Despite our lower earnings forecasts, Centurion is trading at 0.9x 2015F P/B and offers a highly recurring income stream at 8.6x 2016F PE. Share price is also likely to be supported by Centurion’s share buy-backs.

Loke Chunying UOB Kay Hian | http://research.uobkayhian.com/ 2015-09-18

UOB Kay Hian Analyst Report BUY Maintain BUY 0.69 Down 0.725