SINGAPORE (May 18): DBS Research Group is maintaining its ‘hold’ call on dormitory operatory Centurion Corp, but at a revised target price of 42 cents. This is up 1 cent from its previous 41 cent call, analyst Ling Lee Keng says in a May 18 note.

Her move comes as the operator’s late April announcement on allowing residents at its purpose-built student accommodation (PBSA) properties in the UK to terminate their leases early, fetched “lower than expected requests”. 

See: Centurion's Covid-19 bug intensifies as it allows UK students to terminate their leases early with an expected £5m revenue loss

The clause had brought terminations amounting to $5.4 million, the company reported. Collectively, it owns a portfolio of 6,400 PBSA beds mainly in the UK and US but also in Australia, Singapore and South Korea.

Interestingly, Centurion reported a 13% lift in revenue from its PBSA segment for 1Q20, ended March. This comes on the back of higher occupancies at its dwell Archer House in the UK and dwell East End Adelaide, Australia.

See: Dorm operator Centurion braces for slower earnings despite 13% increase in 1Q20 revenue

Ling is now looking forward to the segment getting a further lift as Australia and the UK look towards easing travel restrictions, particularly for international students.

UK for one has adopted a five-tier alert system for its restrictions – with one indicating a complete easing of restrictions and five being a state of lockdown. The country is now at level four and is taking steps to move down a rung.

“There are positive signs of strong demand for UK PBSAs with [Singapore Press Holdings] reporting strong bookings for its student dormitories for the academic year 20/21,” observes Ling.

Similarly, she believes its Australia portfolio will bounce back as restrictions down under are looking to be eased as some areas such as South Australia, open for face-to-face lessons. The government is now looking towards a gradual return to face-to-face learning by Jul 3.

“Centurion could see a quick recovery in bookings and occupancy with the release of pent-up education demand. Based on current restrictions, we expect a 70% FY20F average occupancies for both UK and Australia PBSAs,” she points out.

Conversely, Ling is not as confident of the company’s purpose-built workers’ accommodation (PBWA) operations. The segment had raked in $22.8 million in 1Q20, a 15% increase from the previous year.

The company has a portfolio of 28,000 beds across its five PBWAs in Singapore and another 30,700 beds from its seven facilities in Malaysia. 1Q20’s increased revenue comes from improved occupancies in its Singapore (99.1%) and Malaysia (93.2%) portfolios.

However, Ling is now looking at occupancy levels of 90% and 85% respectively for Singapore and Malaysia.

“With a weaker economy as a result of COVID-19, Centurion may be affected by a reduction in demand for foreign workers and PBWA beds,” she says.

“The Group may also experience an increase in debt delinquencies and longer collection cycles, as its clients’ businesses may be impacted by the crisis”.

Looking ahead, Ling says the company can benefit from asset divestments, asset acquisitions or greenfield developments.

With $115.5 million of unutilised committed facilities – compared to $105 million of maturing debt for FY20 and FY 21 – she believes Centurion’s “liquidity remains sufficient”.

As at 12.37pm, shares at Centurion were down 1 cent or 2.67% to 36.5 cents.