• Maintain BUY, new TP of SGD0.51 from SGD0.43, 34% upside with c.5% upside. Centurion reported strong 1H22 results, with revenue rising 40% YoY to SGD90.5m and core PATMI surging 42% YoY to SGD29m. This affirms our view that both of its workers and student accommodation businesses are recovering rapidly. We believe that FY22F will be a superb year for the company, and lift our TP to SGD0.51 – pegged to 7.5x FY22F P/E, to better reflect its value.

• Solid recovery in demand for worker accommodations. Revenue from its worker accommodation segment expanded by 38% YoY to SGD67m in 1H22, as the demand for labour spiked up post lifting of COVID-19 measures. Centurion’s average occupancy rate in its Singapore worker dormitories recovered to >95%. We also expect a potential rise in its rental prices to mitigate the rise in operational costs it will incur due to inflation – and the company may pass on the cost increases to its customers.

• Strong demand still intact, with rate hikes being likely. Its student accommodation business in 1H22 grew by 43% YoY to SGD22.5m, mainly due to the improvement in the occupancy rates of its facilities in the UK, Australia, the US and Korea. Pre-leasing for 2022-2023F is ongoing and bookings for the year are also strong. Centurion has also acquired a 103- bed freehold asset in Nottingham in the UK, which will be completed in 4Q22 and should boost overall profitability. The Centurion US Student Housing Fund has commenced the sale process of its US assets (where the company owns 28.7% of the units), as management continues its strategic review of its portfolio assets. We think that it will also sell its UK assets if a good offer comes along, which should help to reduce gearing even further. In addition, with inflation rates spiking up – especially in the UK and the US – we think Centurion is likely to raise its dormitory rates by the end of the year, which will be positive for overall numbers.

• Resilient and defensive business. With construction activities resuming actively and demand for workers surging, coupled with global COVID-19 restrictions loosening, we expect its worker and student accommodation business to continue recovering strongly. As the stock is trading at just 5.6x FY22F P/E and at a 52% discount to its NAV of SGD0.796, Centurion is undervalued – even though this company has upbeat growth prospects. It also declared an interim DPS of SGD0.5 cents for 1H22.

• ESG. Using our in-house proprietary methodology, we derive an ESG score of 3.0, which is on par with the country median. As a result, we apply a 0% discount or premium to our intrinsic value to derive our TP.

• Key downside risk: New dormitory specifications to be announced will likely lower total bed capacity – and Centurion may need more capex to enable it to tailor facilities to meet the new specifications.

Source: RHB Research - 16 Aug 2022