CENTURION CORPORATION LIMITED
OU8.SI
Centurion Corp (CENT SP) - Earnings Gap From Westlite Tuas
Earnings missed on earlier closure of Westlite Tuas
- Centurion Corp's FY17 core earnings missed our estimate by 7% due to the earlier closure of Westlite Tuas by one month and weaker rental rate in the Singapore market. We forecast EPS to decrease 22% in FY18E as a result of the earnings gap from the land lease expiration of Westlite Tuas in Jan 2018 and lower rental rate in Singapore.
- On the bright side, the occupancy rate in Singapore remains healthy and performance has improved significantly in Malaysia due to positive regulations.
- We cut our FY18-19E EPS by 12-15% after reducing Singapore rental rate by 5%. Accordingly, our DCF-based Target Price fell 10% to SGD0.50 (WACC 7.0%). Maintain HOLD.
Stable outlook in Singapore
- Worker accommodation rental rate in Singapore declined by c.5% as management took proactive steps to reduce rents in exchange for a higher occupancy rate. Also, demand in the industry has been dented by the weaker oil and gas sector. So far, management’s strategy has worked.
- Occupancy rate remains healthy at 98.4%, better than the 80% rate for the industry. Management expects this market to remain stable.
Good performance and bright outlook in Malaysia
- Worker accommodation rental rate in Malaysia has improved significantly. This is due to positive government regulations that are stricter and encourage proper housing for foreign workers. In FY17, the occupancy rate increased to 91% from c.70% in FY16. In addition, the rental rate increased c.10% y-o-y due to strong demand from the manufacturing industry.
- Management is positive on two projects under development in the state of Johor and Penang, which are expected to be completed in 2018 and 2020.
Positive on student accommodation
- Student accommodations in Australia, UK and US continued to enjoy a healthy occupancy rate of 92% in FY17. The earlier foray into this niche asset class could give Centurion an advantage during scale up.
- In 4Q17, it launched its maiden private fund, the Centurion US Student Housing Fund. The fund acquired six student accommodation assets across five U.S. states. This marks Centurion’s first step in its asset-light strategy.
Swing Factors
Upside
- 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 number 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
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http://www.maybank-ke.com.sg/
2018-03-01
Maybank Kim Eng
SGX Stock
Analyst Report
0.50
Down
0.550
