Centurion Corp - DBS Research 2020-08-13: Vital Signs Are Stable

CENTURION CORPORATION LIMITED (SGX:OU8)

Centurion Corp - Vital Signs Are Stable

Centurion Corp's FY20F earnings revised higher on better-than-expected interest expense and margins.
Australian PBSA FY20F occupancies may decrease to c.65% on second COVID-19 wave.
Liquidity position stable with c.S$170m in cash and committed credit facilities.

Centurion Corp (SGX:OU8) recorded 1H20 revenue and earnings of S$66.6m (+3.7% y-o-y) and S$21.0m (+16.3% y-o-y) respectively.
1H20 PBWA revenue grew to S$45.2m (+11.6% y-o-y) mainly due to the addition of Westlite Juniper and resilient average Singapore PBWA occupancies of 98.5%.
1H20 PBSA revenue declined to S$21.1m (-8.4% y-o-y) as a result of COVID-19 denting occupancies in UK and Australian PBSAs.
Previously, we mentioned that Centurion Corp could withhold dividends. Centurion Corp has confirmed this and no interim dividend will be paid (1H19: 1 Sct) in order to conserve cash in the face of uncertainty.

The COVID-19 situation in UK appears to have stabilised although the Greater Manchester area has seen a mini-outbreak. However, movement restrictions have eased significantly. UK universities are shifting lectures online with small group face-to-face teaching, such as tutorials, resuming. Barring a second serious COVID-19 wave, occupancies could pick up in 2H20. We maintain FY20F UK PBSA occupancies at 70%.
The state of Victoria in Australia has been hit hard by a second COVID-19 wave, resulting in a lockdown being implemented for six weeks from early August. Melbourne, where Centurion Corp’s dwell Village Melbourne City (previously RMIT Village) is located, has announced stage four restrictions. All face-to-face activities are henceforth paused at RMIT University. Given this development, we forecast Australian FY20F occupancies to fall slightly to 65% (previously 70%).

Following COVID-19 outbreaks in Singapore’s PBWAs, there has been a renewed focus to improve the living standards in workers’ dormitories.
New rules are now being piloted in Quick Build Dormitories (QBDs) that include an increase in space per resident and the usage of single deck beds only.
While tightened PBWA regulations are a concern, any changes may surprise to the upside. A few possibilities could include lengthened land lease periods in exchange for PBWA upgrades or even a requirement that only new PBWAs are required to comply with the changes.
Overall, we think the authorities will seek a reasonable outcome for dormitory operators given that PBWA tenders were issued based on previous regulations. Still, operating margins are likely to decrease in the future as operating costs are raised due to reduced bed capacity per dormitory.

Centurion Corp has secured management contracts for three factory-converted dormitories that total roughly 4,000 beds. The contracts will last six months with an option to extend for a further six months.
The government has also announced plans to build over 10 purpose-built dormitories (PBD) to house 100,000 workers.
While the operating model has not been confirmed (government building PBD vs operator building PBD), we believe Centurion Corp will be deeply involved in these tenders especially after the company successfully clinched the management contracts.

We revise FY20F earnings up by 29% mainly on lower interest expense and better-than-expected cost control leading to higher margins. FY20F Singapore PBWA occupancies were also raised, which contributed to the uplift in earnings. However, FY21F occupancies for Singapore PBWA were lowered slightly to 90%, on concerns of the recession impacting occupancies.
WACC was raised slightly as we assumed a lower proportion of debt compared to total capital, in line with the decrease in net gearing in 1H20. As a result, Target Price for Centurion Corp was lowered to S$0.39 (previously S$0.42).
See Centurion Corp Share Price; Centurion Corp Target Price; Centurion Corp Analyst Reports; Centurion Corp Dividend History; Centurion Corp Announcements; Centurion Corp Latest News.

Lee Keng LING DBS Group Research | Singapore Research Team DBS Research | https://www.dbsvickers.com/ 2020-08-13

SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.39 DOWN 0.420