With its stronger earnings, the company has declared a final dividend per share (DPS) of 1.55 cents, taking the total FY2023 DPS to 2.5 cents, translating to 5.9% dividend yield.
Ong notes that Centurion’s revenue outlook for FY2024 remains positive, thanks to strong rental reversions for Singapore due to the continued sizable gap between spot and average rents currently.
“We believe Singapore worker dorm rents will stay at high levels in the medium term, as supply remains constrained through 2030 with dorm operators having to carry out retrofitting works in response to the Ministry of Manpower’s (MOM) plan to de-densify dorms to improve worker living conditions. Overseas, Centurion said it expects occupancies for Australia to remain healthy for the academic year commencing February,” he adds.
As at the end of FY2023, assets under the company’s management hit $2 billion, with multiple asset enhancement initiatives (AEIs) planned across its operating geographies.
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Centurion is also actively exploring capital recycling and merger and acquisition (M&A) opportunities.
On its the company’s December 2023 sale and leaseback agreement of two properties with Kumpulan Wang Persaraan (KWAP) in Malaysia, Ong notes: “We think more could be recycled upon asset maturity for Centurion to shift towards an asset-light model in Malaysia for capital to be deployed towards higher yielding markets and assets.”
“Its valuation at FY2025F price-to-earnings ratio (P/E) of 4.6x, 1.5 standard deviation (s.d.) below the 10-year mean, or 0.4x price-to-book value ratio (P/BV), is undemanding in our view,” concludes the analyst.
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Re-rating catalysts noted by Ong include continued strong rental reversion and successful execution of its capital recycling strategy, while downside risks include a steeper increase in financing costs, and lower bed capacity utilisation on increased supply.
Meanwhile, UOB analyst Adrian Loh is similarly pleased with Centurion’s results, writing that even without the company's valuation gain of $79 million on its investment properties, its operational results were strong, with revenue rising by 15% y-o-y and core net profit rising 20% y-o-y to $84 million.
Loh continues: “Gross profit margin was 9% higher than our estimates, and rose nearly 4 percentage points (ppts) to 72.4% on the back of strong occupancy rates and improved rental rates across all of the company's asset classes.”
He also notes that the company’s purpose-built workers' accommodation (PBWA) continues to be its “pillar”, while its purpose-built students’ accommodation (PBSA) continues to see growth thanks to demand.
“Centurion's PBSA assets across the UK and Australia saw 3 ppts and 15 ppts growth in occupancy rates respectively to 93% and 88%,” writes Loh.
The analyst adds: “Both countries remain strong magnets for international students with the company commenting that it has experienced strong pre-bookings for academic year 2024/2025 for its UK assets, while occupancies are likely to continue to edge upwards in Australia.”
Following this, Loh has raised his FY2024 and FY2025 net profit estimates by 10% and 12% respectively.
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He writes: “We highlight that there is upside potential to our earnings as we have yet to include some of the company's growth projects in our estimates at present.”
Loh adds that Centurion’s share price has risen 26.5% in the past 12 months, easily outperforming the Straits Times Index’s (STI) 3.9% fall in the same period, concluding: “We remain confident that the stock can maintain its absolute and relative outperformance in FY2024.”
Share price catalysts noted by him include the company’s successful capital recycling efforts or capacity expansions involving joint ventures (JVs) which could result in a more asset-light business model that thus requires less capital intensity, as well as a higher-than-expected dividend payout across FY2024.
Lastly, like his fellow analysts, RHB's Alfie Yeo is optimistic on the company.
He writes: "We remain positive on Centurion Corp and continue to see growth driven by higher bed capacity, occupancy, and rental rates. Following FY2023 results, we lift our earnings by a marginal 4% to 6% on higher FY2023 earnings base, which results in a slightly higher target price."
Yeo also understands that following the sale and leaseback of the company's Westlite Bukit Minyak and Westlite Tampoito Malaysia’s public sector pension fund Retirement Fund Inc (KWAP), more of its properties could be unlocked over the mid to longer term.
"Special dividends could also be on the cards, provided there is no use of the sales proceeds for reinvestment," adds Yeo.
The RHB analyst concludes: "Our earnings forecasts are premised on better occupancies at the company’s PBSA assets and bed rates. Failure to achieve these revenue drivers pose downside risks to our estimates."
As at 2.55 pm, shares in Centurion Corp are trading at 0.5 cents lower or 1.16% down at 42 cents.
