Company Update: 8 December 2023
Lighter is better.
• Growing revenue from foreign worker dormitories and student accommodations. Total revenue for 3Q23 rose by 15% YoY from S$44.3mn to S$51.1mn. The growth is attributable to the increase in occupancy and rental rates across its PBWAs and PBSAs. As of 3Q23, the total asset under management was S$1.9bn with 66,607 operational beds in 34 properties in 15 cities globally.
• Maintain Outperform. We reiterate an OUTPERFORM rating on Centurion with a target price of S$ S$0.56 due to a lower discount rate based on rate cut expectations in 2024. Centurion’s performance aligns with our expectations, demonstrating rental rates and occupancy resilience against foreign exchange fluctuations. Potential upside catalysts include its expansion to the Middle East.
9M23 financials update: Improving occupancy and rental rates.
9M23 revenue rose 10% YoY from S$134.9mn to S$149.0mn. The respective 9M23 financial occupancy of PBWA and PBSA were 96% and 90%, up from 88% and 84% in 9M22. The higher contributions from strong occupancies and improved rental rates across all the PBWAs and PBSAs, alongside new managing contracts of five Community Recovery Facilities that came into operation helped boost Centurion’s revenue last quarter.
Prudent financial structure and debt management.
As of September, Centurion’s balance sheet remained robust with a net gearing ratio of 42%, an interest coverage ratio of 3.4x, and an average debt maturity of 6 years. Total assets amounted to S$1.6bn, with total borrowings of S$0.7bn and cash and undrawn committed facilities amounting to S$226mn.
Valuation & Action
We maintain our OUTPERFORM recommendation, with a target price of S$0.56 for Centurion, based on DCF with a terminal growth rate of 2.0% and a WACC of 5.2%. With expansion plans underway alongside improved revenue growth due to revision of rental rates upwards, as previously anticipated, we expect the trend to continue in a short run and normalise in a long run due to the upward revision of rental reversion rates.
Interest rates remain higher for longer, and profit margins continue to be under pressures due to lower-than-expected new order wins.