Centurion Corp (CENT SP) - Maybank Kim Eng 2017-08-10: Outlook Improvement Priced In

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CENTURION CORPORATION LIMITED OU8.SI

Centurion Corp (CENT SP) - Outlook Improvement Priced In

1H17 beat, due to lease extension for Westlite Tuas 

• Centurion Corp's 1H17 core EPS beat our estimate, at 71% of our FY17E. This was thanks to a 9-month lease extension for Westlite Tuas, which contributes a chunky 20% to revenue. We have not factored in this. 
• Occupancy for a newer Singapore asset, Westlite Papan, also hit 99%. 
• Student accommodation continued to fare well, with a high occupancy rate of 94%. We raise FY17-19E EPS by 13-34% for:
  1. Westlite Tuas’ lease extension up until Jan 2018;
  2. the expected completion of Dwell Adelaide and RMIT Village’s extension in Australia in 2018; and
  3. expected completion of its acquisition of student accommodation in the US in Sep 2017. Accordingly, we raise our DCF TP by 34% to SGD0.55 (WACC 7%). 
• Still, given the 65% share price rally YTD, the positives have been priced in and failure to renew Westlite Tuas’s lease could drag EPS significantly, maintain HOLD.

Improving outlook in Singapore 

• Despite a 2% YoY decline in foreign workers with work permits in Singapore for 2016, Centurion’s five worker-accommodation assets kept their occupancy at around 92%. Occupancy for Westlite Papan, its newest asset which started in May 2016, climbed to 99% from 95% in 1Q17.
• Management thinks bed-supply will remain limited as leases for 28k beds expired in 2016 and another 26k will be expiring this year. 
• Also, the government has not released new land for purpose-built dormitories in the past 2-3 years. Rental rate per bed has stabilised but remain flat.

Growing student accommodation in Australia & US 

• Centurion’s 10 operating assets in the UK and Australia kept their occupancy at 94% on the back of stable demand. Both countries are strong educational hubs. In 2Q17, it announced two development projects in Australia. These are now expected to be completed at end- 2018:
  1. 280-bed Dwell Adelaide in Australia; and
  2. 160 new beds for RMIT Village. 
• In addition, it announced plans to acquire a 30% stake in five student-accommodation assets with 1,936 beds in four US states.
• Deal completion is expected in Sep 2017, which we estimate could add SGD2m to its annual earnings.
• TP increased to SGD0.55 from SGD0.41 after raising FY17-19E EPS by 13-34% for:
  1. extension of operating lease for Westlite Tuas till Jan 2018;
  2. completion of Dwell Adelaide in Australia expected in 2018;
  3. new beds for RMIT Village by 2018; and
  4. acquisition of student-accommodation assets in the US.

Swing Factors

Upside

• Successful renewal of its land lease Westlite Tuas Dormitory, ending in Jan 2018.
• 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/ 2017-08-10

Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 0.55 Up 0.410