Centurion Corp - CGS-CIMB Research 2020-03-02: 4Q19 Results Beat; Structural Growth Intact


Centurion Corp - 4Q19 Results Beat; Structural Growth Intact

  • Centurion Corp's FY19 core net profit of S$38m was a beat, rising 11.6% y-o-y on the back of higher revenue of S$133m and overprovision for taxes in prior years.
  • Industry dynamics still favour Centurion’s PBSA and PBWA assets, and growth plans, albeit with some near-term revenue headwinds from Covid-19.
  • Reiterate ADD with a lower Target Price of S$0.58 and c.5% dividend yield. Current valuations at 8.7x FY21F P/E and 0.6x FY20F P/BV are not demanding.

FY19 core net profit +11.6% y-o-y, above expectations

  • Centurion Corp (SGX:OU8) reported an FY19 PATMI of S$100m, up 26.0% y-o-y on the back of a S$66.4m fair value gain on the purpose-built workers accommodation (PBWA) at Toh Guan. Excluding this, core PATMI was S$38.2m, still 9% above our/consensus’ full-year forecasts, which came from lower-than-expected tax expenses and smaller NCI dilution.
  • Revenue was spot on at S$133.3m (+11.1% y-o-y), thanks to higher contribution from both purpose-built student accommodation PBSA (+21% y-o-y) and PBWA (+7% y-o-y).

Positive medium-term industry outlook supports capacity addition

  • With leases of an est. 17,800 beds expiring in 2020, and policy push towards PBWA, we think the industry dynamics in Singapore could bode well for the group. The recent Budget 2020 saw foreign worker (FW) levies stay unchanged, while the cut in FW quota for S-pass workers in certain sectors is expected to have minimal impact as they make up less than 2% of Centurion’s worker residents.
  • Initiatives from Malaysia’s government to regulate proper housing for FW should support an additional 3,600 beds in 3Q20F (Westlite Tampoi II).
  • Student accommodation continues to face supply issues and is a well sought-after asset class in markets like UK, Australia, amid some headwinds in US.

Temporary Covid-19 impact; diversification helps

  • All accommodation assets remain operational for Centurion despite Covid-19; in FY19, they saw strong occupancy rates of over-90% and 88% on average for PBWA and PBSA, respectively.
  • We expect some near-term adverse impact on Australia’s PBSA due to the country’s entry ban (1 Feb) on foreign nationals from China, which accounted for c.28% of its FY19 occupancy. This could be mitigated by its recent relaxation to allow Chinese high school students to enter, as well as increased sourcing efforts from alternative markets. The ramp-up of its JV project in Dongdaemun has also faced delays as schools cancel their short-term programmes.
  • In Singapore, there was a temporary reduction in PBWA bed capacity of c.2% for containment facilities, which could be reinstated by Jun 2020 (projected by management).

Reiterate ADD with a lower S$0.58 TP

NGOH Yi Sin CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-03-02
SGX Stock Analyst Report ADD MAINTAIN ADD 0.58 DOWN 0.610