Dormitory operator Centurion Corporation, looks “stable so far”, PhillipCapital analyst Timothy Ang notes in a non-rated August 18 report. 

His comments follow the company’s stable gearing ratio – the measure of its financial leverage – of 54.1% in 1H2020, compared to 54.5% it was at in 4Q19 ended December. 

The improvement in the metric indicates that Centurion is better levered or geared despite the current bleak economic outlook. 

Ang points out that the group’s operating cash flows also grew 11.4% year-on-year to $32.2 million in 1H2020, thanks to government support measures such as the blanket wage subsidy for Singaporean employees under the Jobs Support Scheme (JSS), rental rebates and foreign worker levy rebates.

“Liquidity is also healthy with cash to short-term borrowings at 1.67x and credit facilities of S$102mn compared to short-term borrowings of S$32mn,” Ang observes.

“The group secured loan moratoriums with banks to extend loan repayments, and have halted all ongoing and new developments to conserve cash”.

Things are looking up for the group as it looks to manage 4,200 beds across three sites for six months starting 3Q2020. The agreement made with JTC has the option of being extended for another six months, bringing its total duration to a year.

This brings the company’s total purpose-built workers’ accommodation (PBWA) portfolio to 32,200 beds.

However, the group may face “higher provisions and rental delinquencies from PBWA customers,” Ang cautions. Already, the financial strain on PBWA customers has increased the group’s provisions for receivables to $1.5 million in 1H2020, from $52,000 in 1H2019.

Ang attributes this to group’s significant exposure – 48% of occupancy – to the construction sector which has been struggling from the restricted operations and stay-home notices or quarantine orders imposed on migrant workers to stem the spread of Covid-19 infections amongst them.

In spite of this, the group logged stable PBWA occupancies at 88.5%.

However, the same cannot be said of the group’s purpose-built student accommodation (PBSA) portfolio which was hit by travel restrictions and university modules being conducted virtually.

Average occupancies plummeted to 81.5% in Adelaide, 74.2% in the UK, 62.5% in Melbourne and 25.4% in South Korea.

Looking ahead, Ang sees “little catalysts for a short-term credit profile uplift” given the headwinds on PBSA occupancies and concerns on rent receivables. It appears the PBWA segment “will support the group for the time being,” he predicts.

“Completion of dormitory worker testing and resumption of construction projects may help alleviate concerns on PBWA rent receivables,” Ang adds.

In terms of Centurion’s bond, Ang says he is ‘neutral’, but deems it “an interesting short tenor play” given its February 1 2021 call date.

“We think there is incentive for Centurion to call the bond given the high step-up, and note that they have adequate short-term liquidity to do so. However, there is uncertainty on when bank moratoriums expire, which could strain liquidity in the future,” he elaborates.

As at 9.42am, shares in Centurion were down 0.5 cents or 1.35% at 36.5 cents.