Centurion Corp - RHB Invest 2016-02-24: Potential Headwinds In FY16

Centurion Corp - RHB Invest 2016-02-24: Potential Headwinds In FY16 CENTURION CORPORATION LIMITED OU8.SI 

Centurion Corp - Potential Headwinds In FY16 

  • The softening outlook of Singapore’s construction and property sectors, and Malaysia’s manufacturing sector – coupled with the net supply increase of potentially 8,000 beds or more – may likely add downward pressure on both occupancy and rental rates. 
  • Despite respectable FY15 results and a stable student accommodation business, we downgrade Centurion to NEUTRAL (from Buy), with a lower DCF-backed SGD0.39 TP (3% upside) due to potential headwinds ahead in FY16 plus the slowdown in NPAT growth.

Potential headwinds ahead – growth may decelerate. 

  • Unlike previously, we may see Centurion’s rapid earnings growth slowing down in 2016 due to the softening outlook of the construction and property sectors. 
  • In addition, there may be another 57,000 beds entering the market in phases this year despite 49,000 short-term lease expiring beds that may be renewed by the Government. If none are renewed, there would still be a net gain in the supply of 8,000 beds. 
  • In Malaysia, the slowdown in the manufacturing sector plus the weaker MYR is also affecting Centurion negatively, with average occupancy rates decreasing to 70-plus percent from 80-plus percent in FY15. As such, we expect its occupancy and rental rates to come under pressure, moving forward. 

Westlite Papan ready by June. 

  • Westlite Papan, a 7,900-bed dormitory set up in partnership with Association of Process Industry (ASPRI), is expected to be operational by June. 
  • Pre-marketing activities have already commenced. 
  • Management also expects the take-up rate to be better than that of its Woodlands dormitory, with rental rates likely be capped at SGD280/month for the next three years. 

Downgrade to NEUTRAL. 

  • We downgrade the stock to NEUTRAL from Buy, with a lower DCF-backed TP of SGD0.39, due to potential headwinds ahead in FY16 plus the slowdown in NPAT growth. 
  • Key risks include an economic slowdown in the countries it has operations in.



Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2016-02-24
RHB Research SGX Stock Analyst Report NEUTRAL Downgrade BUY 0.39 Down 0.57


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