• Maintain BUY, with higher SGD0.64 TP from SGD0.62, 52% upside and c.6% FY24F yield. We remain positive on Centurion Corp and continue to see growth driven by higher bed capacity, occupancy, and rental rates. Following FY23 results, we lift our earnings by a marginal 4-6% on higher FY23 earnings base, which results in a slightly higher TP. The stock currently trades attractively at -1SD from its mean P/E. Our TP is based on 7.5x FY24F P/E, which is below its 9-year historical mean.

• FY23 earnings in line. Revenue of SGD207m (+15% YoY) and core earnings of SGD69m (+23% YoY) were largely in line with our estimates, despite headline earnings growing 114% to SGD153m due to fair value gains. Revenue was driven by bed capacity (65,856 beds, +3% YoY), bed rates (SGD274 per bed, +4% YoY) and higher occupancy (96%, +6ppt). Higher bed capacity was mainly driven by Singapore and Malaysia’s purpose-built workers accommodation (PWBA) facilities, while higher occupancy stemmed from both Malaysia’s PWBA and Australia’s purpose-built student accommodation (PBSA) facilities. Higher average bed rates were generally contributed by Singapore, UK, and Australia, as Malaysia’s rates remained flattish. The higher overall revenue led to better operating leverage, which resulted in better gross (70%, +3.9ppt) and EBIT margins (59%, +6.2ppt). A final dividend of 1.5 SG cents was declared, bringing total DPS to 2.5 SG cents for the full year, amounting to 30% payout ratio.

• Outlook remains positive. We maintain our positive stance on CENT’s outlook on higher bed capacity. Based on the planned number of beds in FY24, the total number of revenue contributing beds is expected to grow 6.5% YoY to 70,166 – contributed by asset enhancement initiatives (AEI) in Malaysia at Westlite Johor Tech Park and Westlite Senai II, and the new Singapore site at Westlite Ubi Ave 3. We also assume slight rate increase and better margins at the current run rate, which contributes to a better revenue and margin forecast. Our FY24F-25F earnings are hence raised by 4-6%. Singapore, which contributes c.66% of total revenue, continues to see demand for foreign workers outstripping supply for dormitories, which bodes well for both occupancy and bed rates. Following the sale and leaseback of Westlite Bukit Minyak and Westlite Tampoi to Malaysia’s public sector pension fund Retirement Fund Inc (KWAP), we believe more of CENT’s properties could be unlocked over the mid to longer term. Special dividends could also be on the cards, provided there is no use of the sales proceeds for reinvestment.

• 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 pose downside risks to our estimates. We apply a 2% ESG discount as its ESG score of 3.0 is below the 3.1 country median.

Source: RHB Research - 6 Mar 2024