The analyst, who has kept his “buy” call on Centurion, believes that the company’s business model of purpose-built workers’ accommodation (PBWA) and purpose-built students’ accommodation (PBSA), will insulate its revenues and profitability from externally-caused shocks brought on by the tariffs.
Centurion’s PBWA assets are likely to benefit from the robust construction demand in Singapore’s public and private sectors, says Loh. In FY2024, the company reported $124 million in revenue, of which nearly 70% came from Singapore and its PBWA assets.
“Construction activity from both the public and private sectors remains high with key multi-year projects such as the Marina Bay Sands expansion (worth $10.7 billion), Resorts World Sentosa expansion ($6.8 billion), Changi Airport Terminal 5 ($11.0 billion), and the 21.5km North-South Corridor linking Woodlands to the western end of the East Coast Parkway ($7.5 billion),” the analyst notes.
The proposed Johor-Singapore special economic zone (JS-SEZ) could also lead to additional demand for Centurion’s PBWA assets in Malaysia, which made up 8% of the company’s FY2024 revenue.
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“At present, we forecast 870 new beds that will be completed by end-2025, with contribution only starting in 2026. In prior conversations with management, they were clearly bullish on the PBWA sector in Malaysia and thus we should expect potential acquisition announcements in the near to medium term,” Loh writes.
The analyst adds that he remains bullish on Centurion’s PBWA business as it is likely for meaningful competition to happen in the near to medium term given that it takes 24 months or more for a potential competitor to tender for and build a PBWA facility.
At the same time, expenditure for education remains inelastic, which will impact Centurion’s PBSA assets in Australia and the UK.
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‘Inexpensive stock’
At its present share price levels, Centurion, which is trading at an FY2025 P/E of 9.5 times and P/B of 0.8 times, is “inexpensive” in Loh’s view.
The analyst’s higher P/E-based target price is due to a higher target P/E multiple of 10.6 times, which is 1 standard deviation (s.d.) over Centurion’s long-term average P/E multiple of 6.9 times. The figure excludes FY2019, when the business was affected by Covid-19.
“We highlight that our target P/E multiple is applied to the average of our FY2025 and FY2026 earnings per share (EPS) estimates to account for the earnings growth from its projects in FY2026,” says Loh. “We believe that this target P/E multiple is undemanding given the company’s earnings growth over the next two years.”
The analyst’s forecast payout ratio for FY2025 remains at an unchanged 30%. This implies an estimated dividend of 3.5 cents per share or a yield of 3.1% based on Centurion’s closing share price of $1.12 as at April 11.
Other factors in Centurion’s favour is its strengthening balance sheet. As at Dec 31, 2024, Centurion’s net debt fell by 8% to $534 million compared to a year ago, resulting in a lower net debt/equity of 0.3 times, down from FY2023’s 0.4 times.
“In our view, its average long-term debt maturity profile remains comfortable at six years while interest coverage ratio improved to 4.4 times (end-2023: 3.6 times),” Loh writes.
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The company’s proposed REIT spin-off of its PBWA and PBSA assets as well as its subsequent dividend in specie is a share price catalyst.
Other catalysts include successful capital recycling efforts or capacity expansions involving joint ventures which could result in a more asset-light business model that requires less capital intensity.
As at 11.08am, shares in Centurion are trading 4 cents higher or 3.571% up at $1.16.
