Centurion Corp - Maybank Kim Eng 2016-08-15: On track, but lacklustre outlook; D/G to HOLD

Centurion Corp (CENT SP) - Maybank Kim Eng 2016-08-15: On track, but lacklustre outlook; D/G to HOLD CENTURION CORPORATION LIMITED OU8.SI

Centurion Corp (CENT SP) - On track, but lacklustre outlook; D/G to HOLD

Unexciting outlook & non-renewal risk for Tuas 

  • Core 2Q16 earnings fell 10% YoY and 1H16 met 50% of our FY16E. 
  • The decline was due to higher interest expense from SGD65m MTN issued as a war chest in Sep 2015. 
  • Revenue grew 11% YoY from two new worker dormitories in Singapore, Westlite Woodlands (3Q15) and Westlite Papan (Q16). 
  • Occupancy and bed rate remain stable for most Singapore dormitories and all student accommodation. 
  • Downgrade to HOLD and cut DCF-based TP 35% to SGD0.37 (WACC 6.5%) due to the lacklustre outlook, rentals could decline amid a more challenging environment. 
  • Also, the land lease of Westlite Tuas, due in Apr 2017, faces a risk of non-renewal.

Singapore dormitories holding still, except for Tuas 

  • Singapore workers accommodation, which contributed around 78% of the group’s profit, is holding on, with occupancy rate near-full and bed rates flat. Only one out of five dormitories, Westlite Tuas is facing increased competition from new dormitories. 
  • Bed rates have declined around 10% YoY. Westlite Woodland, started in Jul 2015, has achieved c.80% occupancy rate and ASPRI-Westlite Papan, started in Jun 2016, is ramping up slowly. Ramp up period is expected to take 9-12 months vs. 3-6 months in the past due to economic slowdown and more new supply.

Student dormitories expected to remain stable 

  • Student accommodation’s revenue grew 15% YoY in 1H16, but profit was flat. 
  • New dormitory in Singapore and higher rent reversions in UK and Australia contributed to the topline growth. However, startup loss in Singapore offset positive contributions from UK and Australia. 
  • Also, Centurion completed four accommodation assets in UK, which could contribute an additional SGD1m, or 2.6% of FY17E profit.

Downgrade to HOLD for lacklustre outlook 

  • We cut our DCF-based TP 35% to SGD0.37 from SGD0.52 and downgrade the stock to HOLD. 
  • We reduce our terminal growth rate to 1% from 2%, to incorporate the slower growth outlook for workers accommodation. 
  • Also, we trim our FY17-18E EPS by 9-18% assuming non-renewal of lease for Westlite Tuas.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-15
Maybank Kim Eng SGX Stock Analyst Report HOLD Downgrade BUY 0.37 Down 0.570