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Analysts raise target prices for Centurion Corp following healthy 1QFY2024 results

Douglas Toh
Douglas Toh • 4 min read
Analysts raise target prices for Centurion Corp following healthy 1QFY2024 results
UOBKH's Loh points out that Centurion has risen 32.1% year-to-date and “easily outperformed” the Straits Times Index’s 2.3%. Photo: Albert Chua/ The Edge Singapore
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Analysts at RHB Bank Singapore and UOB Kay Hian Research are both keeping their “buy” calls on Centurion Corp at respective raised target prices of 69 cents from 64 cents previously and 77 cents from 57 cents previously, following the company’s 1QFY2024 ended March results.

RHB’s Alfie Yeo writes: “We stay positive on Centurion Corp and see growth driven by higher bed capacity, occupancy, and rental rates. Centurion is in a sweet spot for purpose built workers’ accommodation (PBWA) in Singapore, where demand for foreign workers outstrips dormitory bed supply.”

For the period, the company’s 30% y-o-y growth in revenue to $61 million beat Yeo’s estimates, thanks to positive rental reversions and better occupancies in PBWA and purpose built student accommodation (PBSA) properties.

Geographically, Centurion’s assets in Singapore saw a 37% y-o-y growth to $42 million, as did revenue from its Australia and UK  assets, which grew 25% y-o-y to $4 million and 28% y-o-y to $10 million respectively.

Only revenue from its Malaysia assets remained flat at $5 million in the period.

The company’s Singapore and Malaysia’s PBWA occupancies reached 99% and 96% respectively, while its UK and Australia’s PBSA occupancies reached 99% and 90%, all of which outpaced Yeo’s expectations.

See also: Morgan Stanley downgrades Indonesian stocks to underweight

He notes: “As Centurion’s 1QFY2024 occupancy and bed rates have marginally outpaced our assumptions, we now impute higher bed and occupancy rates into forecasts. Consequently, our FY2024 to FY2026 earnings are increased by around 5%.”

The RBH analyst likes Centurion “for being well-positioned” to yield better rental rates in Singapore due to the short supply of dormitory space, while its higher occupancy in Malaysia looks to be fuelled by the increasing number of foreign workers.

“The group is also entering the Hong Kong market with its recent development – Centurion has entered into a master lease agreement to refurbish a property unit into a 66-bed student accommodation facility,” adds Yeo.

See also: RHB maintains ‘buy’ on City Developments at lowered target price of $7.30

“The stock currently trades attractively at 1 standard deviation (s.d.) from its mean price-to-earnings ratio (P/E), below its 9-year historical mean.”

Meanwhile, UOBKH’s Adrian Loh writes that Centurion’s ability to pass on inflation and higher costs allows it to maintain or even expand its profit margins.

He adds the company could see “low to mid-single-digit” y-o-y increases in its Singapore PRWA bed rates over FY2024 and FY2025, due to Singapore’s Building and Construction Authority forecasting higher construction spending over the 2024 to 2028 period of S$32 billion to $38 billion.

Aside from its entry into Hong Kong, Loh notes that Centurion’s redevelopment of its dwell Melbourne asset is pending approval by end 2024, and that it has signed a memorandum of understanding (MOU) with KEZAD Communities, a government-linked company in Dubai, for both its PBWA and PBSA segments.

“In addition, we note that the company’s major shareholder Centurion Properties has purchased land in Sydney and thus any future development of PBSA assets could be sold to Centurion itself,” adds Loh.

The UOBKH analyst also does “not foresee any financial stress” for the company, with its cash of $75 million, cash and undrawn committed facilities of $186 million, net gearing of 38%,  interest cover ratio of 4.7 times and an average debt maturity of five years.

Following this, Loh has upgraded his earnings estimates for FY2024 to FY2026 by 9% to 12%, on the back of higher PBWA bed rates for both Singapore and Malaysia with the bulk of the upgrade for the former. 

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He continues: “With occupancy rates at the maximum of 99%, further earnings upgrades will be predicated on higher bed rates. We have also raised our dividend forecast to three cents a share for FY2024 to FY2026 or a 31% payout ratio.”

“Our new target P/E multiple of 7.9 times is based on the company’s 10-year P/E multiple, which we view as reasonable,” adds Loh.

Importantly, Loh highlights that Centurion’s share price has risen 32.1% year-to-date (ytd) and “easily outperformed” the Straits Times Index’s (STI) 2.3% over the same period. 

He concludes: “We remain confident that the stock can maintain its absolute and relative outperformance in FY2024.”

Share price catalysts include successful capital recycling efforts or capacity expansions involving joint ventures (JV) which could result in a more asset-light business model or a higher-than-expected dividend payout this year, while downside drivers include Centurion’s failure to achieve its revenue drivers such as bed rates and occupancies. 

As at 10.52 am, shares in Centurion Corp are trading at 0.5 cents higher or 0.94% up at 54 cents.

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