Analysts are keeping positive on Centurion Corporation OU8 following the company’s 1HFY2023 ended June 30 revenue expansion to $98 million. Alfie Yeo of RHB Bank Singapore and Chan En Jie of Lim & Tan Securities have both maintained their “buy” calls on Centurion with increased target prices of 62 cents and 58 cents, respectively, up from 51 cents and 55 cents previously.
In his report dated Aug 22, RHB’s Yeo says that Centurion’s 1HFY2023 results have shown that the company is continuing on its recovery path, boosted by higher occupancies, bed rates and operational leverage.
“We expect higher rates to kick in ahead, as rental rate revisions — which began in 4Q2022 — are being priced into new leases and will see their full impact on rental revenue over the next six to 18 months,” he says.
Yeo is forecasting bed capacity to grow at a 3% compound annual growth rate (CAGR) from FY2022 to FY2025, led by asset enhancement initiatives (AEIs), new sites and an increase in bed capacity across Singapore and Malaysia.
Centurion’s Singapore portfolio has already seen an 888-bed increase at Westlite Jalan Tukang and Westlite Tuas Avenue 2’s quick-build dormitories (QBDs), and will also see 1,650 new purpose-built worker accommodation (PBWA) beds at Ubi Avenue 3 from 2025. Across the causeway, its portfolio in Malaysia has added 290 beds at Westlite Tampoi with Westlite Senai adding another 770 beds from 3Q2023. Meanwhile, Westlite Senai II will also increase by 2,720 beds in 2024 after its AEI.
As such, the analyst says he is “more bullish” on Centurion’s margin, occupancies and rates. He has raised his occupancy and bed rental rates to account for increased revenues of between 8% and 11% following the company’s outperformance in 1HFY2023 earnings. “We have also factored in higher gross and operating margins to reflect better operational leverages,” adds Yeo.
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He notes that the interim dividend of 1 cent for the period — compared to the 0.5 cent dividend declared in 1HFY2022 — represented a payout ratio of over 20%, also coming in above expectations.
Accounting for higher interest expense estimates, he has increased his FY2023 to FY2025 earnings estimates by 11% to 13%. As such, his target price has been lifted to 62 cents after rolling over Centurion’s earnings base to FY2024.
For Chan of Lim and Tan, Centurion’s 1HFY2023 results were in line with expectations as overall revenue and core profit formed 50% and 54% of his FY2023 forecast, respectively.
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Still, the continued shortage of bed supply across both the PBWA and purpose-built student accommodation (PBSA) segments going forward is expected to provide positive rental reversions for the company. Centurion’s pipeline of new dormitory beds across Singapore and Malaysia remains healthy and will contribute to FY2023 revenue, says Chan.
He expects the Singapore PBWA segment to be the company’s main growth driver. The segment contributed to 87% of total PBWA revenue in 1HFY2023, which saw a 9.5% increase in revenue and 21.0% increase in operating profits. The analyst estimates that monthly rates have increased from $280 pre-Covid to over $400 currently, an increase of over 40%.
Chan adds that given the tight supply across the country, management notes the possibility of lease extensions across its QBDs which will come to term around 2024 to 2025.
Meanwhile, the return of international students is expected to drive demand for student accommodation. Centurion’s PBSA portfolio in the UK and Australia remain poised to see further demand upside with occupancy rates currently at 90% and 86%, respectively, according to him.
“Pre-bookings for the academic year 2023/2024 are healthy and the bed supply shortage should provide additional rental uplifts. In view of shifts in consumer demand towards personal privacy, Centurion has commenced reconfiguration works on its student accommodation units to provide options for ensuite apartments and single occupancy room formats,” notes Chan.
Along with strong demand from Malaysia’s PBWA and PBSA in the UK and Australia, he has revised his FY2023 and FY2024 revenue upwards by 1.8% and 3.1% and core earnings projections by 5.5% and 4.5%, respectively. Chan’s higher target price of 58 is pegged to a 7.5x core FY2023 price-to-earnings ratio (P/E).
The key risk to the Lim & Tan analyst’s valuation involves higher operating costs from improved dormitory standards. Announced in September 2021, all dorms will be regulated under the Feda Act from April 2023. All new dorms will be required to comply with higher living standards, including more space per resident and better ventilation.
“We note that the government will announce a transition plan soon for existing dorms which are currently not required to follow these standards. This could reduce bed capacity and potentially affect Centurion’s revenue during the renovation period, although we note this is expected to be done in phases to reduce disruption to bed supply across Singapore, explains Chan.
As at 3.55pm, shares in Centurion were trading flat at 42 cents.
