RHB Bank Singapore's Alfie Yeo has kept his 'buy' call and 62 cents target price on Centurion Corp, on optimism that the dorm operator's asset-light strategy is taking shape.
On Dec 4, Centurion announced that it has signed a sale and leaseback agreement with Malaysia's public sector pension fund, Kwap, for two of its dorms for RM227 million ($65.2 million).
Under the terms of the deal, Kwap will enjoy a rental yield of 6.5 to 7% from Centurion, which will continue to be the operator of the dorms.
Yeo, in his Dec 8 note, expects Centurion to divest more properties over the mid to longer term.
"Special dividends could also be on the cards, provided there is no use of sales proceeds for reinvestment," he says.
Yeo is reiterating his positive stance on Centurion Corp, with growth going forward driven by better capacity, occupancy, and rental rates.
See also: RHB initiates coverage on CSE Global with ‘buy’ call with TP of 58 cents
The stock now trades 'attractively' at -1.5SD from its mean P/E. His target price of 62 cents is based on 7.5x FY2024 earnings, which is below its 7-year historical mean.
Separately, KGI Securities is too upbeat on this sale and leaseback move and has also reiterated its "buy" call and 56 cents target price.
"This strategic move aligns with Centurion’s portfolio rationalisation and asset-light growth strategy, allowing the company to recycle and deploy capital for further expansion," says KGI on Dec 8.
See also: Suntec REIT biggest beneficiary from MAS’s ‘looser’ leverage, ICR rules: OCBC
Meanwhile, KGI notes that Centurion remains an asset-heavy model for now. As such, the peak rate and ensuing rate cut cycle is the largest tailwind for the company.
"Besides, the overall portfolio is healthy along with recovering cash flows as worker and student dormitories are in demand in the post-COVID period. Furthermore, the potential lower refinancing rate and interest burden will help improve profitability," adds KGI.
