Centurion Corp - RHB Invest 2019-08-15: Adding Beds As It Grows; Stay NEUTRAL

CENTURION CORPORATION LIMITED (SGX:OU8)

Centurion Corp - Adding Beds As It Grows; Stay NEUTRAL

Maintain NEUTRAL, new DCF-backed Target Price of SGD0.43 from SGD0.41, 5% upside.
CENTURION CORPORATION LIMITED (SGX:OU8)’s 2Q19 revenue grew 8% y-o-y to SGD32.9m, mainly on revenue contributions from dwell East End Adelaide, dwell Princess Street and better occupancy rates at the Singapore PBWA segment.
1H19 revenue/PATMI of SGD64.2m/SGD18.1m represented 50.4% and 55.6% of our previous estimate.

We increase FY19-21F revenue by 2-5%, mainly to account for 1,900 and 3,600 additional beds from 4Q19F and 4Q20F respectively onwards.

Centurion has secured a 10-year lease with the option to renew for another five years, for Westlite Juniper in Singapore. The new lease is expected to add 1,900 beds to its existing purpose-build worker accommodation (PBWA) portfolio of 56,800 beds.
Centurion also signed a 9- year lease to add another 400 beds for a block adjacent to Westlite Pasir Gudang in Johor, Malaysia. It has begun building three dormitory blocks at Tampoi (“Tampoi II”), which will add another 3,600 beds by 3Q20.
With Westlite Juru expected to be completed in FY21, total PBWA capacity would by 68,400 beds by then, marking a 20% increase from its existing capacity. Capex will be funded internally as well as by bank borrowings.

The occupancy rate for dwell Adelaide, which began operating in 1Q19, was > 80% in 2Q19. We also understand that accommodation rates at dwell Dongdaemun and Westlite Bukit Minyak are still ramping up, and will be on track to reach their targets by year-end.
Under Centurion’s asset enhancement initiative, nearly all its beds in RMIT Village have been completed and are student-ready.

Despite the uncertainty surrounding Brexit, there is an uptick in PBSA investments. There is also a record number of students (outside of the EU) who have applied to study in the UK, according to the Universities and Colleges Admission Service as at 30 Jun. However, compressed yields in the UK offer little opportunities for Centurion to put in further investments at the moment.

We lift FY19-21F revenue by 2-5% to account for the new beds added, as well as Centurion’s wider GPM, as the occupancy rates for its new assets are estimated to ramp up progressively.
Key downside risks are low occupancy levels, weakness in rental rates, changes in government regulations, and an unsustainable capital structure. The reverse of such factors represents upside risks.

Lee Cai Ling RHB Securities Research | Jarick Seet RHB Invest | https://www.rhbinvest.com.sg/ 2019-08-15

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