Centurion Corp - DBS Research 2020-04-22: Short-Term Pain

CENTURION CORPORATION LIMITED (SGX:OU8)

Centurion Corp - Short-Term Pain

FY20F earnings cut by 10% after early termination of UK leases allowed.
Centurion Corp's UK PBSA FY20F occupancies set to dip to c.50%.
Short-term liquidity remains sufficient with over S$100m of unutilised credit facilities.

Centurion Corp (SGX:OU8) has allowed residents of its UK PBSAs to terminate their leases early for the rest of the Academic Year (May 20 – Aug 20). We see this as a move to protect its reputation. The Group has estimated that it would lose revenue of between GBP3m and GBP5m depending on the number of terminations.
Assuming 80% of students opt for early termination, UK PBSA occupancies could fall by c.28% to c.50% for FY20F with revenue and operating profit for the segment falling correspondingly by c.S$7.5m and c.S$4m respectively. Net profit will fall by c.S$3.2m.
Centurion Corp’s Australian PBSAs could follow suit in allowing such early terminations depending on how COVID-19 develops in Australia. We note that universities such as RMIT University have suspended all face-to-face teaching on their Australian campuses until further notice.
That said, given the current improving COVID-19 situation in Australia, we have forecasted occupancies to remain at c.70% for FY20F.

As of 20 Apr 2020, Centurion Corp’s Singapore PBWA dormitories have seen a total of 238 COVID-19 cases across three dormitories (Westlite Toh Guan: 146; Westlite Mandai: 74; Westlite Woodlands: 18).
Westlite Toh Guan and Westlite Mandai have also been gazetted as isolation areas meaning that the residents will have to stay in their rooms.
We understand that the above measures have had little impact on Centurion Corp’s financial occupancy at the moment. Customers have continued to pay for beds in the dormitories even as some workers have shifted out and are housed in government procured housing.
Centurion Corp’s Singapore PBWA occupancies have historically been resilient. Hence, we maintain our forecasted Singapore PBWA occupancies of c.90% for FY20F as we think the foreign worker levy rebates could support occupancies.

We think there is limited risk of a breach of financial covenants by Centurion Corp. Under the covenants, Centurion Corp is required to maintain a Consolidated Net Borrowings-to-Consolidated Total Equity ratio of 2.5:1. The ratio for FY19 was estimated to stand at 1.1x, which would mean Centurion Corp’s property portfolio has a c.S$340m leeway for downward revaluations.
In addition, the COVID-19 situation has delayed the reconstruction of a block in Westlite Toh Guan which will lower capital expenditure for FY20F and help conserve cash.
As most PBSA leases in the UK were paid upfront, we believe that cash will be drawn down by c.S$8m to pay for the refunds. After accounting for this, Centurion Corp’s liquidity remains sufficient given its cash on hand of S$40.6m and unutilised credit facilities of S$109.5m as compared to the maturing borrowings of S$56m and S$91m for FY20 and FY21 respectively. (Cash + unutilised credit facilities)/(Maturing FY20 & FY21 Debt) stands at c.1.02x.

Our DCF valuation took into account weaker FY20F UK PBSA occupancies of c.50% although this decrease in income was slightly mitigated by wage support schemes in Singapore and the UK and a cut in management salaries. As a result, our FY20F earnings forecast was lowered by c.10%.
See Centurion Corp Share Price; Centurion Corp Target Price; Centurion Corp Analyst Reports; Centurion Corp Dividend History; Centurion Corp Announcements; Centurion Corp Latest News.
For FY20F, we now think that there is an increased possibility for no interim dividend (worth S$8.4m) to be paid to conserve cash. In such a situation, dividend yield would stand at c.2.6%.

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-04-22

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