3Q15 earnings were in line with estimates, with topline growing 18% YoY, while NPAT fell 7% YoY mainly due to the school break in the UK and higher interest costs from its SGD65m medium-term notes. Maintain BUY with a lower DCF-backed SGD0.57 TP (from SGD0.65, 33% upside). Core operating businesses continue to remain strong on both the student and workers’ accommodation front.
■ Singapore dormitory portfolio remains resilient
Despite the increase in supply of dormitory beds across the country, Centurion Corporation’s (Centurion) dormitories are still at near full occupancy. Westlite Woodlands was completed in July, resulting in an additional 4,100 beds to its portfolio. In view of the weakened oil and gas sectors, management expects occupancy ramp-up to take a longer time than previously expected. Having said that, strategic characteristics of the company’s various accommodations, such as its location and dormitory design, are expected to continue to support occupancies in the near term.
■ Student accommodation provides stability
Leveraging on its expertise in the accommodation business, student accommodation operations in Australia and the United Kingdom would continue to sustain growth and provide stability to its earnings. The major refurbishment of Centurion Student Living (CSL) Selegie, coupled with commercial spaces to cater to student’s evolving needs, ought to position it well to capture Singapore’s student accommodation scene in the near future.
■ Accommodation pipeline to contribute to higher earnings
With 27,600 beds in Singapore and 19,800 beds in Johor as at 30 Sep 15, the company would have an additional 10,000 beds added to its portfolio in FY16. This is expected to contribute to FY16 earnings growth.
■ Maintain BUY, as we remain positive on the counter
However, with the expected additional supply coming into the market in 2016, and stiffer competition in the local dormitory market, we have lowered our terminal growth rate to 0.5% (from 1%), resulting in a lower DCF-backed SGD0.57 TP. (Read Report)
Read Related Report
1) Centurion Corp - Seasonal weakness; still on track by Maybank Kim Eng Research, published on 11 November 2015
Source : RHB Research