Covid-19 could cement Centurion's lead among dorm players

JUST three weeks ago, The Business Times' correspondent Angela Tan pointed out how the Covid-19 outbreak is testing public companies' materiality thresholds for continuous disclosures. She named manufacturers, retailers, and oil and gas companies as among the plague-hit issuers that "should be even more forthcoming in their communications with shareholders".

Now, add foreign worker dormitory operators to that list. With more than 1,800 Covid-19 cases linked to dorm or construction clusters as of Wednesday, companies' responses to the novel coronavirus pandemic will separate the wheat from the chaff.

Centurion Corp - which provides accommodation for foreign workers and students - could come out tops, stock watchers told BT.

That's even as its 7,800-bed Westlite Toh Guan property - one of the first two dormitories gazetted as isolation areas under the Infectious Diseases Act - has so far been connected with 110 confirmed cases of Covid-19 among its residents. Its Westlite Woodlands dormitory has 10 cases.

Centurion, which traded at a three-year low of S$0.37 on March 23, is now down 23 per cent from its last peak of S$0.50 on Jan 17. It closed at S$0.385 on a cum-dividend basis on Wednesday.

Shareholders will vote on a proposed final dividend of S$0.01 a share at an annual general meeting to be held over webcast on April 27.

Dorm-focused Centurion joins diversified construction group Wee Hur Holdings in feeling a lack of love. The latter has a 60 per cent stake in the 16,800-bed Tuas View Dormitory.

Wee Hur shares fell to S$0.167 in early April, down 24.1 per cent from S$0.22 at the start of the year, and ended on Wednesday at S$0.182. There have been 16 coronavirus cases at Tuas View Dormitory so far.

Centurion is, however, a bigger player with a broader portfolio. It manages dormitories for workers under the Westlite brand on both sides of the Causeway - it has 28,000 beds in Singapore alone - and there had been plans to increase capacity.

The group had netted fair-value gains of S$66.3 million in FY2019 on plans to redevelop the Westlite Toh Guan site in October and add an industrial training centre.

Such a move would bring the set-up of Westline Toh Guan closer in line with Centurion's 51 per cent-owned Aspri-Westlite Papan. That joint-venture dorm with Lian Beng Group boasts a training centre and some 7,900 beds. Redevelopment was to have been completed by 2022, but those plans may now be shelved.

"It will be hard to determine the completion as we do not know when the Covid-19 situation will normalise," Centurion chief executive Kong Chee Min told BT. Expansion works for Westlite Tampoi in Malaysia, which had been slated to add 3,600 beds by end-2020, are also on hold.

Still, analysts believe Centurion could walk out of the coronavirus crisis a market-leading winner.

Centurion's management already expects a bed crunch in the industry.

Occupancy across Centurion's portfolio was 97.9 per cent at the close of 2019, compared with just 80 per cent at Wee Hur's Tuas View.

Now, Covid-19's sweep through migrant dorms - where as many as 15 workers might share just one toilet - may prompt tighter regulations even after the outbreak dies down.

Should stiffer rules be introduced, "limited supply and rising demand dynamics in the market would bode well for established dorm operators like Centurion", says CGS-CIMB Securities' analyst Ngoh Yi Sin.

To be sure, Ms Ngoh also noted that Centurion might run downside risks from heavier capital expenditure requirements on its "highly-leveraged balance sheet".

On the other hand, DBS analyst Ling Lee Keng estimated that Centurion could still have S$120 million in debt headroom to deploy.

It had a net debt-to-equity ratio of 1.17 times as at end-FY2019, and its "highly cash-flow-generative" business model has also left Centurion with S$70.2 million in net cash from operations in FY2019, she added.

Said Ms Ling: "Furthermore, a more stringent law could result in a cutback of supply of beds, and that could benefit the dormitory operators that are able to meet the higher operating requirements. As of now, demand is still intact, and the group is not seeing any exodus of workers." Talk of growth opportunities has to be moot for now, though. The health and safety of its foreign worker residents will be top of the agenda for Centurion, Ms Ling noted.

As Manpower Minister Josephine Teo put it recently: "I hope the Covid-19 episode demonstrates to the employers and wider public that raising standards at worker dormitories is not only the right thing to do, but also in our own interests.

"We should be willing to accept the higher costs that come with higher standards."