CENTURION CORPORATION LIMITED (SGX:OU8)
Centurion Corp - Archer House Acquisition A Boon To Earnings
- Maintain NEUTRAL with a new DCF-based Target Price of SGD0.47 from SGD0.43, 8% upside with c.5% yield. See Centurion Corp Share Price; Centurion Corp Target Price; Centurion Corp Dividend History.
- The purchase price of GBP15.1m (SGD26.98m) for the proposed acquisition of a 177-bed student accommodation will bring CENTURION CORPORATION (SGX:OU8)'s total number of beds under management to 65,133, including 6,433 being purpose-built student accommodation, with 2,852 in the UK student housing portfolio. As such, we lift our forecasts by 2-5% for FY20-22 with the inclusion of the beds.
Archer House acquisition.
- The property is a freehold property strategically located close to the University of Nottingham and Nottingham Trent University. Construction of the property was completed in late Sep 2018, and achieved 100% occupancy in 2019 by offering rental discounts and shortened tenancy periods.
- See Centurion Corp Announcements; Centurion Corp Latest News.
- The price tag of GBP15.1m was slightly below its valuation of GBP15.15m. Net profit before tax attributable to the property for FY19 (Aug) was GBP0.72m (SGD1.29m), which translates loosely to a yield of 4.8% with an upside potential once the rental rates revert to normal. We think that the acquisition is fair.
Possible higher debt.
- Centurion Corp has total borrowings of SGD714.9m and SGD53m in cash as at 30 Sep 2019. With the proposed acquisition to be funded by a combination of borrowings and cash, both borrowings and financing cost are set to increase. On the assumption of 3% financing cost on SGD12-16m borrowings, it will cost the group additional interest expense of SGD0.4-0.5m.
- Net contribution from the property to Centurion Corp is likely to be SGD0.5-0.6m based on the most recent financial year results.
Are there more to come?
- With the addition of Archer House, Centurion Corp’s portfolio now has 6,433 beds for student accommodation and 58,700 beds for the workers accommodation, with another 3,600 beds under construction – expected to be completed in 2020.
- We think that the group is likely to add more beds to its current portfolio next year to meet its steady demand. However, it could be interesting to see Centurion Corp venturing into other specialised accommodation types as well.
Stay NEUTRAL.
- We like Centurion Corp as a defensive play, while its recurring income provides a buffer from any earnings downside. We also think that this counter is reasonably priced, in view of the size of its accommodation assets portfolio.
- Key downside risks are low occupancy levels, weakness in rental rates, changes in government regulations, and an unsustainable capital structure. The reverse of these factors represents the upside risks.
Jarick Seet
RHB Securities Research
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https://www.rhbinvest.com.sg/
2019-12-17
SGX Stock
Analyst Report
0.47
UP
0.430
