Centurion Corporation - Maybank Kim Eng 2015-11-11: Seasonal weakness; still on track

CENTURION CORPORATION LIMITED OU8.SI

Centurion Corporation - Seasonal weakness; still on track

3Q15 in line, 9M15 met 72% of FY15F. NP fell 7% YoY on higher MTN costs and UK summer holidays.
Higher MTN financing costs already anticipated. Still expect 18% EPS growth in FY15F.
Trim FY15-17 EPS by 2% for housekeeping. DCF TP reduced to SGD0.57 from SGD0.68 due to higher risk premium from increased gearing (WACC 6.7% from 6.2%).

3Q15 in line. NP fell 7%, dragged down by a 66%/SGD1.8m hike in interest cost due to SGD65m MTNs issued in July. The weaker bottomline is anticipated, and 9M15 met 72% of FY15F.
3Q15 revenue/gross profit rose 18%/10% YoY, largely due to expansion into UK student market in Sep 2014 and addition of Westlite Toh Guan in Singapore.
Gross margin declined 5ppt as UK summer school holidays in Jul–Sep meant only one month of revenue but 3 months of costs. Westlite Woodlands with 4,100 beds opened in July 2015 was still only 10% occupied in 3Q15.

With the un-utilised MTN, management is on the lookout for suitable acquisitions. We expect progress within the next 6 months.
Occupancy remains high and rising. Westlite Woodlands, expected to break even at 50%, should be 80% occupied by 2016. With worker accommodation industry still healthy, we expect new Singapore/Malaysia bed capacity of 12,900/6,000 in FY16/17 to continue to drive growth.
Net gearing has increased to 124% from 94% in FY14, but cashflow remains healthy at SGD13m after income tax, interest and loan principal repayments. And despite the higher interest cost, we still expect 16% EPS growth in FY15F.
The stock is attractive at 10x P/E.
Maintain BUY but with DCF TP cut to SGD0.57 on higher risk premium from higher gearing.

John Cheong Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2015-11-11

Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 0.57 Down 0.68