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Broker's take: DBS initiates coverage on Centurion with 'buy', S$0.52 target price

DBS Equity Research has initiated coverage on student and worker dormitory operator Centurion Corporation with a "buy" call and a target price of 52 Singapore cents, citing the company's resilience and its ability to generate stable revenue "even in times of crisis".

At 4.10pm on Friday, Centurion shares were trading up 0.5 Singapore cent or 1.2 per cent to 41.5 cents on about 465,400 shares changing hands.

DBS analyst Ling Lee Keng said: "Centurion’s purpose-built workers accommodation (PBWA) segment has proven its ability to tide over difficult times with historical occupancies in its Singapore PBWA never falling below 84 per cent".

In the first half of the year, Ms Ling added that occupancy at workers dormitories "even hit 96.9 per cent despite the decline in
foreign workers and regulatory headwinds".

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Centurion's move to expand its bed count at its PBWAs by 5,500 beds or 6.1 per cent over the next two years could boost operating income for PBWA by around 11 per cent for FY2021. The PBWA segment accounts for about 65 per cent of the group's revenue.

Ms Ling noted that Centurion's portfolio of purpose-built student accommodation (PBSA) is primarily located in the UK and Australia, which are likely to remain key geographies and are set to continue their growth.

"PBSA bed count is also expected to increase by 11.6 per cent in FY2019 due to the expansion in Australia, translating to a
potential FY2019 improvement in PBSA top line of 17.5 per cent year on year," Ms Ling said.

With property valuations for student accomodation in the UK market increasing by 30.6 per cent over the last five years on high investor interest in PBSAs, there are opportunities for Centurion "to divest its assets and unlock value," she added.

Downside risks to DBS's call include unfavourable changes to the regulatory environment, foreign exchange volatility, or a sustained deterioration in Singapore’s and Malaysia’s economic outlook which could affect demand for foreign labour.