UOB Kay Hian (UOBKH) is maintaining its ‘buy’ call on Centurion Corp but at a revised target price of 43 cents.
This is 1.5 cents lower than its previous 44.5 cent call and is believed to give the counter a 28.4% upside from its 34 cent price, analyst Adrian Loh writes in an Aug 18 note.
“We used a target P/B (price-to-book) multiple of 0.6x which is in line with Centurion’s past five-year average P/B of 0.61x, which we believe is fair. Currently, it trades at 0.44x P/B which is >1.5SD below its five-year average.
Loh believes that Centurion will be trading at 9.0x 2022 P/E (price-to-earnings) at his price target.
His move follows the dormitory operator’s 1H21 results. Revenue was down 3% y-o-y to $64.7 million while gross profit fell by 10% y-o-y to $43.6 million.
In line with this, gross profit margin was just over 67%, a 5 percentage point decline from the previous year.
See: Centurion books fair value loss of $14.5 mil, 1HFY2021 earnings down 58% y-o-y
Loh says the group’s 1H21 revenue and gross profit make up 51% and 53% of his full-year estimates respectively.
Overall, PATMI (profit after taxes minus interest) plunged by 58% y-o-y to $8.7 million following net fair value losses of $14.5 million on its investment properties.
“Centurion’s in line 1H21 results showed a decent level of resilience now that vaccination rates have reached very high levels in its key market segments, and thus have had a positive knock-on effect on economic activity,” says Loh.
He believes the group’s earnings have troughed and outlook remains solid.
However, Loh points out that costs at Centurion’s purpose-build workers’ accommodation (PBWA) have increased by 15% y-o-y as more staff are needed on the ground to ensure that safe management measures are being adhered to.
The group has been dampening these costs with technology.
The management says the group has not been significantly impacted by the Covid-19 clusters at its PBWA assets at Juniper and Mandai.
With only parts of the dormitories been putting shut off, the Centurion team does not expect any significant cash impact or termination of leases.
Analysts from DBS Group Research expect demand to return progressively at the group’s PBWAs in Singapore once the Manpower permits the entry of migrant workers from high risk countries.
“Given that a vast majority of foreign workers hail from countries that are high risk, we think demand for Singapore PBWAs and in turn occupancies will improve from the 82% in 1H21 but may not exceed the 90% occupancy level,” they add.
On the other hand, the group’s purpose built students’ accommodation (PBSA) assets in Singapore and Australia remained in the doldrums in 1H21.
The asset in Melbourne has been affected by poor occupancy following the restrictions on international students’ travel. Meanwhile, its asset in dwell Selegie in Singapore was hit by the extension waiver of its third final two-year lease.
DBS’ analysts do not foresee improvements in the occupancy levels in the Australian PBSA due to the new restrictions.
However, they note that the relaxation of restrictions in the UK bodes well for the groups’ PBSAs there.
Going forward, UOBKH’s Loh and analysts from DBS say that green shoots of recover can be seen following the easing of Phase 2 (Heightened Alert) restrictions in Singapore and the lifting of movement restrictions from July 19 in the UK.
The group also stands to gain from healthy occupancy levels at its PBWAs in Malaysia.
Its biggest challenge is the uneven resumption of work and university on-campus programmes as there are varying levels of vaccination rates, movement control restrictions and lockdown policies across its geographic segments.
To this end, Loh has downgraded his full-year earnings forecast by 34% to take into account the fair value loss.
“Our net profit estimate for 2021 is skewed towards a higher bottom-line in 2H21 given that out of the company’s full-year guidance of 8,488 new beds in 2021 (growth of 12% yoy), Centurion has seen 3,840 or 45% of the total come online in 1H21,” he elaborates.
Meanwhile, DBS’ analysts are maintaining a ‘hold’ call on the counter at a 38 cent target price.
Shares in Centurion closed flat at 33.5 cents on Aug 18.
Cover image: file photo