Centurion announced a record FY14 with recurring NPAT exceeding our estimates by 7.2%. Maintain BUY. Being conservative, we adjust for lower rental and occupancy rates, which reduce our FY15 and 16 NPAT estimates by 5.5% and 12%, resulting in a lower DCF-backed TP of SGD0.75 (27 % upside). Going forward, we expect slight headwinds for its Singapore dormitories, especially Tuas. However, we still believe Centurion’s low tender rates put them in a comfortable position.
■ Another stellar year
FY14 revenue reached a record high of SGD84.4m, representing a 48% increase YoY. Core NPAT rose 63% to SGD31.1m YoY partly due to higher occupancy and rental rates in Malaysia, and the contribution from its student accommodation segment. Management has announced a dividend payout of 1.5 cents for FY14, inclusive of a special interim dividend of 0.5 cents in 1Q14.
■ Slight headwinds ahead
Tuas currently faces some competition from other dorms in the vicinity, causing rates to drop slightly to about SGD250-270 per bed. Occupancy levels in Singapore and Malaysia remain at 95% and 90%, while Australia and the UK enjoy the same occupancy levels of 98% respectively.
■ Potential REIT catalyst
Centurion is exploring the possibility of a REIT listing of their Singapore dormitories. We believe that this REIT listing will be positive for Centurion in terms of unlocking its asset value and solving its high gearing. We also expect management to reinvest a portion of the funds prudently into Singapore dormitories, and issue a special dividend to reward shareholders if the REIT listing is successful.
■ Maintain BUY with a SGD0.75 TP
After adjusting for lower rental and occupancy rates, we cut our FY15 and FY16 NPAT estimates by 5.5% and 12% respectively, arriving at a lower DCF-backed TP of SGD0.75 (from SGD0.83). However, despite potential headwinds, we still believe that Centurion’s early mover and low tender rate advantage puts them in a comfortable position. The workers accommodation project in Jalan Papan, which is strategically located close to Jurong Island in partnership with the The Association of Process Industry (ASPRI), is also on track to be completed in 2016. Maintain BUY. (Read Report)
Source : DMG/OSK Research