Highlights

Centurion Corp Visit Note - Under One Roof

Date: 07/10/2019

Source  :  RHB
Stock  :  Centurion       Price Target  :  0.43      |      Price Call  :  HOLD
        Last Price  :  0.445      |      Upside/Downside  :  -0.015 (3.37%)
 


  • Maintain NEUTRAL and DCF-backed Target Price of SGD0.43, 8% upside.
  • We recently visited Centurion Corp’s Purpose Built Workers Accommodation (PBWA), Westlite Tampoi (Johor Bahru) and Westlite Senai II (Johor) in Malaysia where several large manufacturers are based, as well as ASPRI-Westlite Papan in Singapore. We also had a tour of the Purpose Built Student Accommodation (PBSA) – dwell Selegie – and its global security operations centre.

Centurion Is One of the Largest PBWA Owner-operators in Singapore and Malaysia

  • CENTURION CORPORATION (SGX:OU8) develops and/or operates PBWA assets in Singapore and Malaysia, as well as PBSA assets in the UK, US, Australia, South Korea and Singapore.
  • Established in 1981, the company started as an audio cassette tape manufacturer. Centurion Corp was listed on SGX in Jan 1995, and it underwent a reverse takeover in 2011, diversifying into the accommodation business.

Workers accommodation

  • Being the largest PBWA provider in Singapore and Malaysia, Centurion Corp's PBWA assets consist of 56,800 beds across 11 operating assets. In Singapore, the group achieved an average occupancy rate of 96.9% among its four workers accommodations (totalling 26,100 beds) in 1H19.
  • The group recently secured a 10-year lease, with an option to renew for another five years, for Westlite Juniper. It has just commenced operations in Sep 2019, and the property would add 1,900 beds to its existing portfolio.
  • In Malaysia, Centurion Corp operates seven PBWA assets with a total of 30,700 beds. Excluding Bukit Minyak, the occupancy rate was at 90.2% for the 1H19. Westlite Tampoi II and Westlite Juru are under construction, which will add another 3,600 and 6,100 beds respectively when they are completed in 3Q20 and 2021. This should bring the total number of beds to 68,400 (+20.4%) from its current PBWA portfolio of 56,800 beds.

Student accommodation

  • In 2014, Centurion Corp ventured into student accommodation in the UK, with an initial portfolio of 1,900 beds. The PBSA assets are operated through the brand, “dwell” student living launched in Feb 2017.
  • As at 30 Jun 2019, the student housing portfolio consisted of 6,252 beds across 20 assets, of which 12 assets are fully owned and managed, while eight assets are owned through private funds and JVs. These assets include six in the US (Centurion has 28.74% stake), one asset in Nottingham, UK (14.29% stake) and one asset in Seoul, South Korea (55% share).
  • Disclosed occupancy rates are as follows as at end-1H19:
    • UK – 90.3% (1H19)
    • RMIT Village, Melbourne – 81.3% (2Q19)
    • East End Adelaide – 82.1% (2Q19)
    • Singapore – 87.3% (1H19)

Key Takeaways

  • PBWA assets provide a safe and secured environment with a range of amenities under one roof such as sick bay, gym, and supermarket/minimart for the convenience of the foreign workers. The increasing awareness of the need for improved living conditions of foreign workers has led to the rising demand for quality workers accommodation.
  • Westlite Tampoi and Westlite Senai II (together with four other assets in Malaysia) have an average occupancy rate of 90.2% in 1H19. We understand that its closest peer near Senai II is operating at 80-85% occupancy rate. Sitting on freehold land, each property contains 5,300 and 5,900 beds respectively and the average rental rate is MYR110-130/month. Revenue derived from these two properties sum up to approximately MYR14.5m (SGD4.8m) pa, 4% of FY18 revenue. We understand that the residents include workers from large multinational corporations (MNCs) like Flextronics Corp.
  • Singapore PBSA, dwell Selegie, is strategically located in the city centre, with close proximity to several education institutions – it achieved an average occupancy of 87.3% in 1H19. The asset, with a capacity of 332 beds, is its only student accommodation in Singapore. Centurion Corp owns and manages 20 student accommodation assets of 6,256 beds with a presence in Australia, Singapore, South Korea, the UK and the US.
  • Aspri-Westlite Papan – first PBWA with a built-in training centre to cater to the training needs of workers from the process, construction and maintenance (PCM) industry. This property has a capacity of 7,900 beds. Strategically located near Jurong Island, it houses workers from the PCM industry such as PEC LTD. (SGX:IX2), MUN SIONG ENGINEERING LIMITED (SGX:MF6), and ROTARY ENGINEERING LIMITED (SGX:R07) – companies supporting the oil & gas sector in Singapore.
  • The global security operations centre controls/monitors CCTVs and door access of the PBSA (excluding the UK) and PBWA properties. The strong team of eight personnel in the headquarters work on a 14-hour operations schedule. There are also security officers on the ground to ensure the safety of the properties and its residents.

Maintain NEUTRAL

  • While we think that the assets and operations are in good order, we believe that the current share price is fairly valued based on our DCF-backed Target Price of SGD0.43. As such, we maintain our call as we await future corporate developments for the stock to rerate upwards.
  • Key downside risks are low occupancy levels, weakness in rental rates, changes in government regulations, and an unsustainable capital structure. The reverse of these factors represents the upside risks.

Source: RHB Invest Research - 7 Oct 2019

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