- Keep BUY and SGD0.51 TP, 46% upside and c.3% yield. We remain upbeat on Centurion Corp, as 1Q23’s revenue growth validates improving demand for its assets globally. Occupancy continues to improve in all the company’s key markets and it remains on track to meet our forecasts. We expect growth to be driven by both increased bed capacities and better rental rates. Valuation is undemanding, with the stock currently trading at below -1SD of its mean P/E. Our TP is pegged to 7.5x blended FY23-24F P/E, ie below its 7-year historical mean.
- 1Q23 revenue in line. 1Q23 revenue grew 5% YoY to SGD47m, led by: i) Recovery in the occupancies of Malaysia’s purpose-built workers accommodation (PBWA) on increasing migrant worker numbers and Australia’s purpose-built student accommodation (PBSA) on the return of international students post COVID-19 and ii) positive rental revisions in Singapore, Malaysia, the UK and Australia. Singapore and UK occupancies remained strong at 98% and 90%.
- Higher capacities and asset enhancement initiatives (AEIs) to drive growth. Centurion continues to enhance its property portfolio with more beds and AEIs for better rental rates. Singapore’s beds are set to increase with approval by JTC Corp for additional 888 beds at Westlite Jalan Tukang and Westlite Tuas Avenue 2 quick-build dormitories (QBDs). 1,650 PBWA beds at Ubi Avenue 3 will also kick in from 2025. Meanwhile, Malaysia will see another 290 beds at Westlite Tampoi in addition to Centurion’s 10-year management contract for 2,196 beds in Westlite Cemerlang in Johor from 3Q23. Westlite Johor Tech Park, Westlite Senai, and Westlite Senai II will also add another 3,490 beds to its portfolio when completed progressively in 2024 and 2025 in this year’s AEIs. Other AEI works include conversion of layouts at Manchester’s dwell Manchester Student Village or MSV, Liverpool’s dwell Cathedral Campus, dwell Village Melbourne City, and dwell East End Adelaide to enhance demand, occupancy, and rental income. Since 1Q23’s net profit was in line, our FY23F-25F earnings remain unchanged.
- Key downside risks: Our earnings forecasts are premised on better occupancies at the company’s PBSA assets and bed rates. Failure to achieve these revenue drivers poses downside risks to our estimates.
- ESG framework update. As Centurion’s ESG score is 3 out of 4 – on par with our country median – we apply a 0% discount/premium to its intrinsic value to derive our TP. As there is now greater focus on the E pillar on critical climate change issues, we tweaked our ESG weightage. Henceforth, we assign a 50% weightage to the E pillar, followed by 25% each to the S and G pillars. See our 2 May thematic research for more details.
Source: RHB Research - 5 Jun 2023
