• Reiterate BUY, with SGD0.64 TP, 43% 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. CENT continues to be in a sweet spot as the leading Purpose Built Workers’ Accommodation (PBWA) in Singapore where demand for foreign workers outstrips dormitory bed supply. 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.

• Enters the Hong Kong student accommodation market. Last week, CENT announced that it has established a 60%-owned subsidiary, Centurion- Lionrock (HK), with an independent third party and 40% joint venture partner LionRock Property. The new subsidiary has entered into a master lease agreement with Smart Enterprises to lease a building located at 177 Prince Edward Road West, Kowloon, Hong Kong, with the intent to refurbish it into a 66-bed student accommodation. The refurbishment is expected to be completed and operational in Sept 2024 and will cost approximately HKD11.5m (c.SGD2m), including initial working capital. The master lease will be valid for five years from 5 Apr 2024 with options to renew for three years and a further two years. This development is in line with CENT’s strategy to grow its accommodation business globally, via an asset-light approach. As CENT’s key markets are Singapore, Malaysia, and UK, this will be its maiden entry into Hong Kong. However, with just 66 beds, minimal capex outlay for refurbishment, and a 60% stake, the scale of this project is small compared to the company’s other key operations. Hence, we expect minimal change to overall earnings for now, which translates into a neutral stock impact.

• Outlook remains positive. We maintain our positive stance on CENT’s outlook on higher bed capacity. Based on the planned number of beds in FY24F, 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 like CENT for being well-positioned to yield better rental rates in Singapore due to the dormitory supply shortage situation, and better occupancy in Malaysia as its increasing number of foreign workers are to be housed in purpose-built dormitories. We believe these developments in Singapore and Malaysia will continue to bode well for CENT.

• 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.

• ESG. Our TP includes a 2% discount to the intrinsic value as per our in-house proprietary ESG methodology, as CENT’s ESG score of 3 (out of 4) is one notch below the country median of 3.1.

Source: RHB Research - 19 Apr 2024