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.

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, 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.

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