DBS Group Research is maintaining its ‘hold’ call on dormitory operator Centurion Corp, but at a slightly lower target price of 38 cents.

This is down a cent from its previous 39 cent call and is believed to give the counter a 12% upside from its 34 cent price on Feb 26, analysts Woon Bing Yong and Lee Keng Ling say in a Mar 1 research note.

Their move follows Centurion’s recent earnings announcement for FY2020 ended December in which its revenue was in line with their forecast, while earnings came below expectations.

Revenue came in at $128.4 million, down 3.7% y-o-y, while earnings was down 82.8% to $17.2 million.

The lower earnings were mostly attributed to a fair value loss of $30.4 million recorded on investment property. Comparatively the segment had posted gains of $61.5 million in the previous year.

Still, Woon and Lee note that the occupancy levels at the operator’s purpose-built workers’ accommodation (PBWA) facilities in Singapore remained resilient, albeit declining to 93.9% in FY2020.

SEE:Centurion Corp reports 83% drop in earnings to $17.2 mil, skips dividend

This follows de-densification efforts as well as a return of some migrant workers to their hometown.

Across the border in Malaysia, PBWA occupancies was at 79.7% in FY2020 as newly opened dormitories were still ramping up operations. For comparison, occupancy levels was 93.2% among Malaysian PBWAs excluding Westlite Bukit Minyak in FY2019.

The tide is turning however, with the enforcement of the Amendment to the Workers’ Minimum Standards of Housing and Amenities Act.

“We think that the government believes PBWAs are an effective measure for quarantine and controlling the pandemic,” mull Woon and Ling.

“Malaysia has a large undocumented immigrant population in the millions and so a stronger enforcement of the act would be positive for dormitories”.

Meanwhile, occupancy levels at Centurion’s purpose-built student accommodations (PBSAs) took a hit as border closures disrupted student travel, while measures imposed locally reduced the incentive for students to stay in campus.

As such, occupancy levels at Centurion’s PBSAs in the UK and Australia tumbled to 69.7% and 54.0% respectively.

Woon and Ling are however noticing an improvement in the outlook for PBSA occupancy levels in the UK and Australia, as vaccinations efforts are being ramped up in both countries.

For instance, they observe that vaccination appears to be progressing well in England, and it is slated to lift restrictions in June.

Over in Australia, the Covid-19 case count remains low. Enrolments at Australian universities have remained high at 684,000, but is down 9% from the year before.

And while arrivals of international students have plunged by 99% on year, the analysts say that “the high enrolments points to strong student accommodation demand once restrictions are lifted”.

However, the analysts point out another problem going forward: Centurion will be not be receiving further government grants in the markets it operates in. They estimate these grants to have supported core net profit to a tune of some $7.8 million in FY2020.

They add that the operator could face a drop in the employment of migrant workers as a result of the discontinuation of the foreign worker levy waivers provided in Singapore in 2020.

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Still, Woon and Ling say that the company can possible additional revenue of $12 million in FY2021 ended in December from the leases it has secured to operate four quick-build dormitories (QBDs) in Singapore. These will offer some 6,400 beds.

Against this backdrop, the duo expect Singapore’s PBWA occupancies (excluding of the 4 QBDs) to dip to 84%, while that in Malaysia is slated to rise to 83% (excluding the new Westlite-PKNS Petaling Jaya and the Tampoi II development).

The average PBSA occupancies for UK and Australia are also projected to improve to 74% and 67% respectively, driven by a pickup in occupancies in 2H2021.

In line with this, the analysts have revised their FY2021 earnings up by 3% to account for the additional contributions from the four QBDs in Singapore, Tampoi II development and Westlite-PKNS Petaling Jaya in Malaysia.

As at 4.19pm, shares in Centurion were down 0.5 cents or 1.47% to 33.5 cents.