• Centurion's FY20F earnings revised 4% higher due to lower than expected requests for early lease termination.
• PBSA UK FY20F occupancies could hover at 70%.
• Improved credit position with net debt-equity dropping to 1.08x.

Centurion Corp's 1Q20 Revenue Rises on Higher Bed Capacity

• Centurion Corp (SGX:OU8)'s 1Q20 revenue was S$35.5m (+13.4% y-o-y, -1.4% q-o-q) supported by increases in portfolio capacity in Australia (RMIT Village, dwell East End Adelaide), the UK (Archer House) and Singapore (Westlite Juniper).
• 1Q20 PBWA occupancies improved in both Singapore and Malaysia to 99.1% and 93.2% respectively.1Q20 PBSA occupancies in the UK and Australia were mixed at 93.4% for the former and 72.9% for the latter.
• Based on termination requests received for UK PBSAs, Centurion expects revenue reduction of S$5.4m as a result of the early lease termination policy.
• The COVID-19 case count across Westlite’s Singapore dormitories stands at 963 as at 13 May 2020.

Australia and the UK Moving to Lift Restrictions

• Australia has laid out a three-step framework on easing of COVID-19 restrictions. Step three of the framework involves the possible lifting of travel restrictions for international students. The level of restrictions to be eased in Australia still depends on the situation in each state. The state government of Victoria is finalising a plan for a gradual return to face-to-face learning before the end of Term 2 (3 July 2020).
• Schools in South Australia have opened for face-to-face learning. That said, universities such as the University of South Australia, are expected to continue online classes until 4 July 2020.
• The UK is adopting a five-tier alert system that will inform the level of restrictions. Currently, the UK is at level four and beginning to take steps to move to level three.
• Other pertinent points include a possible quarantine of visitors to the UK who travel by air and the gradual reopening of primary schools from 1 June at the earliest.

Future Expansion Plans Put on Hold, Including the Termination of Westlite Juru

• Due to the economic uncertainty stemming from COVID- 19, Centurion has terminated the 6,100 bed Westlite Juru project in Penang, Malaysia.
• Our forecasts remain unchanged as we had conservatively not factored in contribution from Westlite Juru in our estimates.
• Other plans on hold include the development works at Westlite Tampoi II and the postponement of reconstruction of a block at Westlite Toh Guan in Singapore.

Credit in Focus – Adequate Short-term Liquidity

• As of 31 March 2020, Centurion’s borrowings decreased slightly in the quarter to S$724.8m while interest coverage ratio rose to 3.4x from 2.8x in the previous quarter.
• Net debt-equity stood at an estimated 1.08x while average debt maturity after approved principal moratoriums was 7 years.
• Centurion has S$115.5m of unutilised committed facilities compared to S$105m of maturing debt for FY20 and FY21 (FY20: S$23m; FY21: S$82m). Taking this into consideration, we think Centurion’s liquidity remains sufficient.

Softer PBWA Occupancies May be on the Cards; PBSA Should Improve With Lifting of Movement Restrictions

• Though 1Q20 PBWA occupancies remained strong at 99.1% for Singapore and 93.2% for Malaysia, we are forecasting a slight decline in Singapore PBWA occupancies to 90% for FY20F and 85% in Malaysia. With a weaker economy as a result of COVID-19, Centurion may be affected by a reduction in demand for foreign workers and PBWA beds. The Group may also experience an increase in debt delinquencies and longer collection cycles, as its clients’ businesses may be impacted by the crisis.
• On the other hand, PBSA occupancies could improve should travel restrictions ease and universities resume on-campus teaching. Centurion could see a quick recovery in bookings and occupancy with the release of pent-up education demand. Based on current restrictions, we expect 70% FY20F average occupancies for both UK and Australia PBSAs.

Maintain HOLD Call With Slightly Higher Target Price of S$0.42

• Following Centurion’s early lease termination policy for its UK purpose-built student accommodations (PBSA), Centurion received termination requests amounting to S$5.4m of revenue loss, which was lower than expected. There are also positive signs of strong demand for UK PBSAs with SPH (SGX:T39) reporting strong bookings for its student dormitories for the academic year 20/21. As a result, we have raised Centurion's FY20F UK PBSA occupancies to 70% (from 50% previously) and earnings by 4%.
• The situation is still fluid however and the number of COVID-19 cases will dictate the level of easing of restrictions in the near term.

Source: DBS Research - 18 May 2020