Centurion Corp - RHB Invest 2016-05-11: Results In Line But Headwinds Lie Ahead

Centurion Corp - RHB Invest 2016-05-11: Results In Line But Headwinds Lie Ahead CENTURION CORPORATION LIMITED OU8.SI 

Centurion Corp - Results In Line But Headwinds Lie Ahead 

  • Centurion reported its 1Q16 results with NPAT dipping 1% YoY, in line with our estimates. 
  • Going forward, we do expect the tough economic conditions to drag on its profitability and expect its Singapore accommodation average rental rate to decline by 3-5% in its upcoming renewal exercise. 
  • However, its average occupancy rate remains relatively high, at above 95%, across its Singapore dormitories. 
  • Occupancy rates in its Malaysia dormitories has also softened somewhat. 
  • Maintain NEUTRAL with a DCF-backed TP of SGD0.39 (5% return). 


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 expiring short-term leases for 49,000 beds potentially being renewed by the Government. If none are renewed, there would still be a net gain in the supply of 8,000 beds. 

Rental & occupancy rates likely to drop. 

  • In Malaysia, the slowdown in the country’s economy and manufacturing sector plus the weaker MYR is also affecting Centurion negatively, with average occupancy rates decreasing to > 70% from > 80% in FY15. 
  • Meanwhile, in Singapore, we also expect its occupancy and rental rates to come under pressure in the subsequent quarters – although rates held up well in 1Q16. 

NEUTRAL. 

  • We remain NEUTRAL on Centurion, with an unchanged DCF-backed TP of SGD0.39, due to potential headwinds ahead in FY16 coming from the potential softening of occupancy and rental rates from both its Singapore and Malaysia workers dormitories due to tough macro conditions.



Jarick Seet RHB Research | http://www.rhbinvest.com.sg/ 2016-05-11
RHB Research SGX Stock Analyst Report NEUTRAL Maintain NEUTRAL 0.39 Same 0.39


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