Centurion Corp - CGS-CIMB Research 2020-09-02: Frontrunner To Win More Quick Build Dormitories (QBDs) Contracts


Centurion Corp - Frontrunner To Win More Quick Build Dormitories (QBDs) Contracts

  • Centurion recently won a Jurong Town Corporation (JTC) tender to lease and manage up to 6,400 beds in 4 Quick Build Dormitories (QBDs) for a lease term of 3 years (with a 1-year extension option).
  • Our sensitivity analysis shows S$0.8m-5.1m additional net profit in FY21-22F (c.2-14% accretion) based on at least 80% occupancy and S$300/mth rental.
  • We like the asset-light strategy and believe Centurion is well positioned to benefit from more contract wins.
  • Reiterate ADD on on Centurion, with a S$0.40 DCF-based Target Price.

Secured another tender by JTC to lease and manage 6,400 beds

  • Centurion Corp (SGX:OU8) announced that it had on 1 Sep been awarded a tender by Jurong Town Corporation (JTC) to lease and manage four new foreign worker dormitories in Singapore, which are part of the new Quick Build Dormitories (QBDs) previously announced by the Singapore government in Jun 2020. See Centurion Corp Announcements. This follows its recent win of a management service contract from JTC to manage c.4,200 beds across three sites for a duration of six months (with the option to extend for another six months), which are expected to be operational from 3Q20F.
  • Unlike the management service contracts where Centurion only collects fixed fees, this latest tender allows the group to lease and manage the four QBDs at a monthly rate of S$1.09m for a lease term of 3 years, with an option to extend for an additional year.
  • The four QBDs are at Kranji Way Dormitory (c.1,300 beds; first lease to commence on 21 Sep), Tuas Crescent Dormitory (c.1,020 beds), Tuas South Boulevard Dormitory (c.628 beds) and Jalan Tukang Dormitory (c.3,420 beds).

Our sensitivity analysis suggests S$0.8m-5.1m net profit accretion

  • The additional 6,400 beds will expand Centurion’s purpose-built workers accommodation (PBWA) portfolio in Singapore by 22.9%, bringing its total capacity to 34,400.
  • Based on our sensitivity analysis of occupancy level and chargeable monthly rental rates to its net profit contribution, we think Centurion will need to achieve at least 70% occupancy rate and S$325 rental per month to break even, assuming a 75% gross margin (historically 73-83% GPM for its PBWA segment).
  • We note that its PBWA occupancy level in Singapore has been consistently above 90% (1H20 average: 98.5%), while the average pricing per unit ranges from S$260 to S$345 per month). Assuming Centurion can ramp up the occupancy level across the four QBDs by end-FY20F to at least 80%, and charge a min. of S$300 monthly rental per bed, we estimate that it could add S$0.8m-5.1m to its FY21-22F net profit (or c.2-14% accretion).

First-mover advantage amid changing landscape; reiterate ADD

NGOH Yi Sin CGS-CIMB Research | Caleb PANG Huan Zhong CGS-CIMB Research | https://www.cgs-cimb.com 2020-09-02
SGX Stock Analyst Report ADD MAINTAIN ADD 0.400 SAME 0.400