• Maintain BUY, with new SGD1.06 TP from SGD0.76, 27% upside and c.4% FY25F yield. We like Centurion Corp for being well positioned to yield better rental rates in Singapore from the dormitory supply shortage situation. We turn more positive on CENT on better purpose-built workers accommodation (PBWA) bed rates in Singapore, with longer term growth supported by overseas properties. We raise our earnings and lift our target P/E based on FY25F earnings to 9x from 7.5x in view of its longer-term growth potential.

• Enters China market with JV partner. CENT announced that it has entered into a framework agreement with accommodation services company Xiamen City Home Apartment Management to establish two JVs to retrofit, renovate and/or manage and operate build to-rent (BTR) residential accommodation targeting working professionals in Xiamen, located in the Fujian province. CENT will hold 51% in the JV. Two projects totalling c.1,500 BTR apartments have been identified in central Xiamen under the JV. They are five blocks of new residential development to be retrofitted into 1,000 apartments targeting fresh graduates and working professionals, and one block of new residential development to be retrofitted into 500 quality apartments. Both projects have 20-year master leases with the property owners.

• Strengthening presence in China. This Xiamen development follows CENT’s recent announcment of entering into Hong Kong earlier this year. While these overseas developments will support longer term growth, we see negligible impact for now and have left CENT’s immediate term growth due to this as largely unchanged. Nonetheless, these projects will supplement growth to core markets such as Singapore.

• Raise FY25F-26F earnings by 12% and 17%. PBWA bed rates in Singapore have continued to be robust and due to the demand-supply situation, we see ongoing upward rental reversions lifting average bed rates going forward. In view of the strong demand, we raise our Singapore PBWA bed rate assumptions for FY25-26 by 10-15% to SGD400-450 per bed per month. This results in a +12% and +17% change in our FY25F-26F earnings. We also ascribe a higher P/E to our TP to 9x from 7.5x, or around +0.5SD from its historical mean to account for longer term growth potential in new overseas markets including Hong Kong and Xiamen, resulting in a higher TP.

• Key downside risks. Our earnings forecasts are premised on better occupancies and bed rates, failing which, could pose downside risks to our estimates. Our TP includes a 2% discount to the intrinsic value, as CENT’s ESG score of 3 (out of 4) is below the 3.1 country median.

Source: RHB Research - 14 Oct 2024