“We believe Centurion is an unappreciated beneficiary of various macro trends, such as strong demand recovery post-border reopening, undersupply of beds across operating geographies, PBWA regulatory reforms spurred by pandemic handling experience, and [a] growing awareness for migrant workers’ welfare,” writes Ong.
Due to persisting tightness on Singapore’s purpose-built dorms (PBDs), leases on Centurion’s quick build dorms (QBDs) look likely to extend, with an observable about 30% growth year to date (ytd). The return of foreign workers and swelling rent fees for public flats have also pushed some employers to relocate their Malaysian workers to PBDs.
Ong states, “We believe the supply tightness in Singapore will persist in the medium term, given the government’s intention to progressively de-densify existing PBWA (transition plan to be announced end-2023), and with new supply only progressively entering the market in 2025. As such, we see a good likelihood that Centurion’s quick build dorms (QBDs), which were part of the government’s temporary solution to meet housing requirements of foreign workers during the pandemic, to be extended beyond current lease terms (3+1 years) in our forecast period.”
Ong also notes that the Singapore market is the group’s largest contribution at about 66% of FY2022 revenue.
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Meanwhile, PBSA occupancy and a spurt in rents have been a result of border openings, with CENT’s PBSA unit observing healthy pre-bookings for the upcoming academic year (AY) 2023/24, notably by students from China.
With post-asset enhancement initiatives (AEI), CENT’s PBSA’s financial occupancy is expected to further recover to 94%/85% in the UK/Australia for FY24F from 90%/80% in FY23F, while rents could grow another 10-15% in the upcoming assessment year.
Rising interest in the PBSA asset class led to cap rate compression in recent years, providing a good opportunity for CENT to unlock value.
“We believe better accounts for both CENT’s strong near-term earnings potential and potential asset recycling in Malaysia to accelerate asset under management (AUM) growth via its asset-light model. Its valuation is undemanding, in our view, at 4.9x FY24F P/E, or a 57% discount to RNAV.,” adds Ong.
Re-rating catalysts include progressive resumption of DPR to pre-pandemic levels of 40-50% and successful execution of its capital recycling strategy, while downside risks include higher-than-expected increase in financing costs, and a slowdown in the construction/O&G sectors impacting worker requirements.
As at 4.10pm, units in Centurion Corp are trading at 43 cents.
