Centurion Corp (CENT SP) - Maybank Kim Eng 2017-03-02: Stable growth, raising TP, but outlook unexciting

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CENTURION CORPORATION LIMITED OU8.SI

Centurion Corp (CENT SP) - Stable growth, raising TP, but outlook unexciting

FY16 results beat; stable dormitory business 

• FY16 core earnings beat our expectation by 6% due to better-than-expected dormitory businesses in Singapore and contributions from the newly acquired student accommodation business in the UK. 
• Core earnings grew by 8% YoY for FY16, while revenue increased by 15% YoY.
• We raised our FY17-18F EPS by 4% for improved Singapore business and newly acquired UK business. As a result, our DCF-based TP increased by 14% to SGD0.41 (WACC 6.8%, LTG 1.5%). 
• Maintain HOLD due to the unexciting outlook for workers’ dormitories in Singapore.

Workers’ accommodation business remained stable 

• The workers’ accommodation business remains the key earnings contributor, at >80% of group profit and Singapore remains the major contributor in this segment. 
• FY16 workers’ accommodation segment posted 19% YoY revenue growth, mainly lifted by occupancy growth in two new dormitories in Singapore: 
  1. Westlite Woodlands started in Jul- 15 (c.90% occupancy rate in 4Q16); and 
  2. ASPRI-Westlite Papan started in May 2016 (c.75% occupancy rate in 4Q16). 
• In Malaysia, revenue improved marginally; average occupancy rate was c.70%. The gradual relaxation of hiring freeze of foreign workers has started to benefit the group.

Student accommodation grew & launched new brand 

• The student accommodation business continued to grow and contributed 20% of total FY16 profit. The growth was largely attributed to: 
  1. CSL Selegie, started in Oct 2015 (c.90% occupancy rate in 4Q16); 
  2. four newly acquired student accommodation assets in the UK in Jul-16; and 
  3. rental reversions of c.3% from the business in Australia and the UK.
• Centurion has launched its own brand, “dwell” to strengthen its market position in the student accommodation segment.

Improved outlook for Singapore, but still lacklustre 

• The outlook for the workers’ accommodation sector in Singapore is improving as some bed supplies have been removed from the market and due to positive government policy. However, lower foreign workers growth and a slow economy could limit demand for beds.

Swing Factors

Upside

• Successful renewal of its land lease Westlite Tuas Dormitory, ending in Apr 2017.
• Spin-off of its assets for REIT could help to unlock value of properties, generate management fees and recycle capital.
• Easing of foreign workers’ policy by the Singapore Government. This could increase the no. of foreign workers and hence demand for beds.

Downside

• Oversupply of dormitory beds in Singapore, which could increase competition and reduce rental rate.
• Further tightening of foreign workers’ policy by the Singapore government.
• General economic slowdown, which could reduce the demand for foreign workers.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-03-02

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.41 Up 0.360