• Centurion (SGX:OU8) reported strong 1H22 results, with revenue rising 40% y-o-y to S$90.5m and core PATMI surging 42% y-o-y to S$29m. 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 Centurion, and lift our target price to S$0.51 – pegged to 7.5x FY22F P/E, to better reflect its value.

Solid Recovery in Demand for Worker Accommodations

• Centurion's revenue from its worker accommodation segment expanded by 38% y-o-y to S$67m 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 Centurion 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% y-o-y to S$22.5m, 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 Centurion 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 Centurion's share price is trading at just 5.6x FY22F P/E and at a 52% discount to its NAV of S$0.796, Centurion is undervalued – even though this company has upbeat growth prospects.
• Centurion also declared an interim dividend of S$0.005 for 1H22.
• Maintain BUY recommendation on Centurion, new target price of S$0.51 from S$0.43, 34% upside with ~5% upside.

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 target price.

• 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 Invest Research - 16 Aug 2022