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

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%). 

MTN cost drag on 3Q15 already in forecast 

  • 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. 

Healthy acquisition war chest, occupancy full 

  • 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