Brokers’ take: RHB expects better occupancy, rental rates for Centurion; raises target price

RHB on Tuesday (Aug 22) raised its target price on Centurion by 21.6 per cent to S$0.62 from S$0.51, following a “robust” first-half performance for the dormitory operator.

The new target price implies a potential upside of 49.4 per cent from the counter’s last trading price of S$0.415 as at 4.13 pm on Tuesday. Shares of Centurion were trading 1.2 per cent or S$0.005 lower at the time.

“We expect growth ahead, driven by better capacity, occupancy and rental rates, as we see scope for these matrices to improve going forward,” said RHB analyst Alfie Yeo in a report.

The mainboard-listed group’s financial results for the first half ended June had beaten the research team’s estimates.

On Aug 10, Centurion posted H1 earnings of S$38.3 million, up 16 per cent from S$32.9 million in the year-ago period. Revenue was 8 per cent higher at S$97.9 million from S$90.5 million, supported by stronger demand for workers’ accommodation and student accommodation across Singapore, Malaysia and Australia.

RHB’s research team said the results show Centurion’s continued recovery, lifted by higher occupancies, bed rates and operational leverage. It expects higher rates to kick in as rental rate revisions, which began in Q4 2022, are being priced into new leases.

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The full impact on rental revenue from these revisions will be seen over the next six to 18 months, RHB added.

Furthermore, it expects bed capacity to grow at a compound annual growth rate of 3 per cent from FY2022 to FY2025, assisted by asset enhancement initiatives, new sites and rising bed capacity across the Singapore and Malaysia markets.

The research team has also factored in higher gross and operating margins in its estimates to reflect better operational leverages. Together with higher interest expense projects, RHB raised its FY2023 to FY2025 earnings forecast by 11 per cent to 13 per cent.