Centurion Corp - UOB Kay Hian 2021-03-04: 2020 Better-Than-Expected Results, But Outlook Remains Cloudy

CENTURION CORPORATION LIMITED (SGX:OU8)

Centurion Corp - 2020 Better-Than-Expected Results, But Outlook Remains Cloudy

Despite the COVID-19 pandemic, Centurion reported only a 4% decline in 2020 revenue to S$128m. However, S$28m in asset impairments led to an 83% y-o-y decline in NPAT to S$17m. Excluding the impairment, Centurion performed better than our expectations.
We lower Centurion's 2021 earnings forecast by 9% due to lower occupancy expectations for its Australian and UK PBSA assets.
Maintain BUY. Target price: S$0.445.

While its reported NPAT declined 83% y-o-y, Centurion Corp (SGX:OU8)’s pre-exceptional NPAT proved to be better than our expectations. The net fair valuation loss amounted to approximately 2.1% of Centurion’s investment properties value of S$1.3b as at end-20.
Importantly, Centurion’s FY20 NPAT from core businesses witnessed a 9% y-o-y increase to S$47m, helped by lower interest rates as well as COVID-19 government grants.
Overall for 2020, the Purpose Build Workers’ Accommodation (PBWA) and Purpose Built Students’ Accommodation (PBSA) both experienced equally poor collections.

During the analyst call, Centurion's management cited the changes in rent payment due to the COVID-19 pandemic as a reason for the lower accounts receivable turnover rate. Centurion has opted to allow for payment via instalments in order to maintain a good brand image and good working relationships, and that it – barring any economic downturn and a successful roll-out of vaccines – will record lower provisions in 2021.
Centurion did not declare any dividends for 2020 vs a S$0.02 per share declared for 2019. See Centurion's dividend history.

Centurion saw volume growth in 2020 with management services contract for 4,000 beds in Singapore as well as a master lease to operate four Quick Built Dormitories with ~6,400 beds. As at end-20, two of the sites have commenced operations.
In addition, Centurion continued expansion in Malaysia with the master lease of the 6,044-bed Westlite PKNS Petaling Jaya (21+9 year lease) which started operations in Dec 20.
While Centurion expects 2021 occupancy to increase as the country’s Movement Control Order eases, we have factored in flat occupancy rate for Malaysia at 80% for 2021 and a 5ppt increase for Singapore to 85%.

In 2020, Centurion’s PBSA business was hit by the sharp fall in international students, especially in the UK and Australia, which resulted in management guiding for revenues from these two countries declining by a total of S$14m in 2021. Revenue will also drop due to the disposal of its smallest PBSA in the UK, Beechwood House; however, the impact will be minimal, on our estimates.
In terms of rental per bed, Centurion is looking to maintain current rates in anticipation of the return of international students once travel restrictions are relaxed in 2H21, and is not looking to divest this business segment.

In 2021, Centurion will look to adapt its current assets to fit the needs of each market; in particular, it intends to focus on domestic students in each of its PBSA markets for now, while continuing to engage with the international student market via direct digital marketing and online tours. Management will also explore short-term opportunities, e.g. converting its Korean PBSA, Dwell Dongdaemun, into a containment holding facility.

We have downgraded our Centurion's 2021 net profit forecasts by 9% as we have factored in a slower and more uneven pace of recovery, particularly in the company’s PBSA segment in Australia and the UK where we have lowered occupancy rates by 3-5ppt.
Our 3% upgrade to 2022 profit forecasts factors in a return to normalcy in Australia and the UK.

Maintain BUY on Centurion with a mild change to our target price to S$0.445 (previously S$0.444), implying 30.9% upside. We have used a target P/B multiple of 0.6x which is in line with Centurion’s past five-year average P/B of 0.62x, which we view as fair.
See Centurion Share Price; Centurion Target Price; Centurion Analyst Reports; Centurion Dividend History; Centurion Announcements; Centurion Latest News.
Currently, Centurion's share price trades at 0.45x P/B which is 1.5SD below its five-year average. At our target price, Centurion would trade at 8.0x 2021F PE.
We have elected to value Centurion using a P/B multiple instead of the previous DCF methodology given the uncertainty over the pace of the recovery in the company’s business. We note that our discounted free cash flow (DCF) model (WACC 5.5%, terminal growth: 1.0%) values Centurion at S$0.46 per share.

Earlier resumption of domestic and international flights.
Faster-than-expected easing of social distancing restrictions in affected countries.

Adrian LOH UOB Kay Hian Research | https://research.uobkayhian.com/ 2021-03-04

SGX Stock Analyst Report BUY MAINTAIN BUY 0.445 UP 0.440