"A potential REIT spin-off and the MAS’ $5 billion equity market injection just around the corner reinforce our investment case," he adds.
According to Loh, Centurion remains one of his top picks in Singapore's property-related sector, due to its "material" exposure to the construction industry with its portfolio of workers' dorms.
In its 1QFY2025 business update, 71% of its total revenue came from Singapore and 77% of its revenue came from workers' dorms. The company operates students' dorms too, in markets such as Australia.
Loh points out that construction activity in Singapore is seen to remain "elevated" in the coming two to three years, thanks to a few mega projects such as the airport's Terminal 5, as well as the expansion of the two integrated resorts.
The way Loh sees it, another key thing going for Centurion is the upcoming $5 billion funding from the government to help boost the local stock market by allocating this money to fund managers to invest in non-STI stocks.
Centurion "should be one of the main beneficiaries" given how it has "built a strong reputation as a highly competent accommodation manager, has strong historical and forecast earnings growth".
The company is also operating in a sector that is "relatively insulated" from geopolitical risk that has risen markedly in the past few days, says Loh.
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Loh expects the company to generate higher-than-expected rental reversions while keeping occupancy levels high.
Besides Singapore, the company is bullish that it has room to grow with the Johor-Singapore Special Economic Zone. "We should expect potential acquisition announcements in the near to medium term," says Loh.
In addition, Centurion is poised to spin off a portfolio of its assets as a REIT for its own listing and according to Loh, this will take place in 3QFY2025.
"Management has guided that the proposed REIT will be of a 'reasonable size', reflecting the company's significant asset growth since its initial exploration for a REIT listing in 2015," says Loh.
He deems the stock, trading at just 12.6x FY2025 earnings and 1.1x P/B, now, as "inexpensive".
As such, he has raised his FY2025 earnings estimates by 2% and FY2027's by 5%. In addition, Loh has applied a higher valuation multiple of 13.3x, which is 1 sd above the long term average PE of 8.1x, thereby deriving his new target price of $1.70.
Centurion Corp gained 2.58% to trade at $1.59 as at 9.47 am.
