Centurion Corp - CGS-CIMB Research 2020-04-29: At The Pit Stop


Centurion Corp - At The Pit Stop

  • We cut our FY20-22F EPS forecasts by 5.9-17.7% as we expect 10-30% decline in FY20-21F PBSA occupancy and lower rental reversions.
  • While Centurion's PBWA occupancy remains above 90%, expansion plans are deferred and positive rental reversions are likely to be capped.
  • We now expect no interim dividend and a lower FY20F DPS of 1.5 Scts in light of current headwinds, implying 3.9% yield.
  • Reiterate ADD.

Lower financial occupancy for PBSA through FY20-21F

  • Centurion Corp (SGX:OU8) announced on 20 Apr that it allows residents in its UK PBSA properties to terminate their leases early. We think similar termination offers could be extended to other purpose built student accommodation (PBSA) facilities in Australia, Singapore and the US. As such, we expect PBSA occupancy for FY20-21F to fall by 10-30% and positive rental reversions to be capped.
  • With the biggest impact felt in Australia and the UK, which are its two biggest contributors to overall PBSA revenue, we estimate this to bring down FY20F earnings by c.S$6m-7m (or c.15-16%).
  • Near-term weakness could weigh on FY20F earnings, with potential upside for FY21/22F earnings should the Covid-19 situation improve.

Slower PBWA expansion plans amidst near term uncertainty

  • Despite workers-tenants moving into government-procured housing, financial occupancy for Centurion’s purpose built workers accommodation (PBWA) remains above 90%, as customers continue to pay for the beds.
  • We project flat PBWA earnings for FY20F, assuming FY20-21F rental rates remain constant and expansion plans are deferred. Apart from the delayed reconstruction of Westlite Toh Guan, and the temporary halt in construction in Tampoi II, Centurion also recently terminated a PBWA project in Juru, Penang on 24 Apr.

Expect no interim dividends, FY20F DPS of 1.5Scts

  • Centurion is considering the suspension of future dividend distribution until market conditions stabilise. As interest coverage ratios remain above 2.5x for FY20-21F, with S$49m cash at end-2019 and deferred capex plans, we think the group will now pay a lower DPS of 1.5Scts for FY20F (previously 2Scts), pegged to a 39% dividend payout ratio. See Centurion Corp Dividend History.
  • While net gearing still remains relatively high at 1.1x (as at end 2019), Centurion has received strong support from banks to provide a moratorium on principal repayment.

Reiterate ADD with a lower S$0.45 DCF-based Target Price (WACC: 4.9%)

NGOH Yi Sin CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-04-29
SGX Stock Analyst Report ADD MAINTAIN ADD 0.45 DOWN 0.580