Centurion Corp - CGS-CIMB Research 2020-04-10: Contagion Risk


Centurion Corp - Contagion Risk

  • Centurion Corp (SGX:OU8)’s PBWA was hit by a rise in Covid-19 cases. Financial occupancy remains above 90% but higher opex could weigh on its FY20F earnings.
  • Expansion plans put on hold but we are still positive on its long-term outlook.
  • No change to our ADD call and S$0.58 Target Price.
  • We believe the near-term noise has been priced in at the current 7.6x FY21F P/E and 0.5x FY20F P/BV.

Key takeaways on Covid-19 outbreak in FW dorms

  • We had a conference call with Centurion Corp management following the recent outbreak of Covid-19 in foreign worker dormitories in Singapore, including its 7,800-bed Westlite Toh Guan facility, which has been gazetted as an isolation area.
  • The purpose-built workers’ accommodation (PBWA) segment accounted for 73% of FY19 gross profit, of which Westlite Toh Guan contributed 36%. An inter-agency task force was set up on 7 Apr, funded by the Ministry of Manpower. Centurion Corp continues to provide assistance, stepping up cleanliness and hygiene efforts.
  • In FY19, Centurion Corp had the biggest exposure to the construction (42%), oil & gas (27%) and manufacturing (13%) sectors. We retain our FY20-22F forecasts as its PBWA average occupancy rate remains above 90%, although every one month of rental loss across all its PBWA assets could reduce our FY20F revenue by 5.5% and earnings by 11.6%.
  • Increased regulations post the outbreak may result in higher operating costs for dorm operators but they could also weed out smaller players and accelerate the transition from mixed shift housing for foreign worker. We believe the tight industry dynamics will continue to favour established PBWA operators like Centurion Corp and underpin positive rental reversion in the medium term.

Expansion plans now on hold

  • Due to the movement control order in Malaysia and the circuit breaker in Singapore, the group’s earlier plans to open Tampoi II by 3Q20 and reconstruct a block at Toh Guan are now halted. These could help Centurion Corp alleviate its working capital needs, with potential additional help from Singapore’s Solidarity Budget.
  • Despite the relatively high net gearing of 1.1x (as of end 2019), we believe Centurion Corp is able to service its financing cost (c.S$29m p.a.) based on its S$60m-70m yearly operating cash flow.

Our ADD call and S$0.58 Target Price remain intact

NGOH Yi Sin CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-10
SGX Stock Analyst Report ADD MAINTAIN ADD 0.580 SAME 0.580