Centurion Corp - UOB Kay Hian 2015-10-15: Takeaways From Conference

Centurion Corp - UOB Kay Hian 2015-10-15: Takeaways From Conference CENTURION CORPORATION LIMITED OU8.SI 

CENTURION CORP (CENT SP) Takeaways From Conference 


VALUATION 


• Compelling valuations. 

  • Share price has corrected nearly 50% from its high in 2014 on poor market sentiments and concerns over the industry’s supply and demand dynamics. Despite market concerns, Centurion’s earnings have continued to grow over the last few years. 
  • At its current price, Centurion is trading at 0.8x 2016F P/B and 8.3x 2016F PE. 
  • Maintain BUY and DCF-based target price of S$0.69. 

• Price support from share buy-backs. 

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

INVESTMENT HIGHLIGHTS 


• Background. 

  • Centurion is one of the largest providers of workers’ accommodation in Singapore and Malaysia with more than 40,000 beds in operation. The group also owns student dormitory assets in the UK and Australia, which adds a defensive element to its already highly recurring earnings. 

• Healthy occupancy rates in workers’ dormitory assets. 

  • With the exception of Westlite Woodlands (TOP in Jul 15), Centurion’s workers’ dormitories continue to enjoy very robust occupancy rates of more than 90% with rental rates sustained at S$250-300/bed/month. The dormitories also serve a wide range of sectors such as construction, marine and services. 

• Balancing sustainable growth and earnings quality. 

  • Recognising the defensive nature of student dormitories, Centurion has been diversifying into the student dormitory business over the years. The group’s student dormitories (3 in the UK, 1 in Australia) have typically maintained near-full occupancy rates in the last few years and enjoyed positive rental reversions annually. We estimate that Centurion derives 25-30% of its earnings from the student accommodation business. 

• Expect another year of growth in FY16. 

  • Going into 2016, we expect earnings growth to be driven by a full-year contribution from Westlite Woodlands, and a contribution from Westlite Papan (51%-owned) which is expected to be completed by mid-16. To recall, Westlite Papan was awarded by the Association of Process Industry (ASPRI), a trade association representing the interests of engineering service providers supporting the process industry (eg manufacturing of petrochemicals). We believe the proximity of the dormitory to Jurong Island, as well as the strong support expected from ASPRI members, will help underpin bed demand at this new dormitory when it becomes operational.


Loke Chunying UOB Kay Hian | http://research.uobkayhian.com/ 2015-10-15
UOB Kay Hian SGX Stock Analyst Report BUY Maintain BUY 0.69 Same 0.69


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