Yahoo Finance Lim and Tan keeps 'buy' on Centurion Corp as dormitory outlook remains positive
Analyst Chan En Jie has maintained his target price of 58 cents given the healthy pipeline of dormitory beds.
Lim and Tan Securities analyst Chan En Jie is maintaining his “buy” call and target price of 58 cents on Centurion Corporation OU8, whose outlook remains positive with positive rental reversions and a healthy pipeline of dormitory beds.
Given the sharp rise in work permit holders in the construction, marine shipyard and process sectors from 370,000 pre-Covid to 434,000 as at May 2023, more workers are being housed in non-dormitory accommodations, such as residential properties, hotels and hostels.
However, Chan notes in his report dated Sept 20 that demand for dormitory housing is likely to increase after the Ministry of Manpower (MOM) announced a need to moderate demand for non-dormitory accommodation to ensure workers have access to designated accommodations.
Since April this year, all dorms have been regulated under more stringent requirements of the Foreign Employee Dormitories Act (FEDA). “The shift in demand back to dormitory housing, coupled with the demand-supply mismatch where upcoming new purpose-built developments will only begin operations in 2025, will likely benefit dormitory players like Centurion,” says the analyst.
With effect from Sept 19, MOM requires proof of accommodation for new foreign workers before they are allowed to enter Singapore. Approval will be granted within a week for workers staying in dormitories, significantly faster than about six weeks or more for workers housed in non-dormitory properties.
“Time is of the essence for employers in the booming construction and oil and gas sectors trying to catch up on projects delayed during the pandemic,” says Chan, who notes that regulatory demand will also benefit well-established dormitory players like Centurion.
Going forward, he believes Centurion enjoys top-line visibility and has the pricing power to increase rates, if necessary. Thus far, the company’s bed rates have been “tracking” the average rates of $420 per month provided by MOM, indicating “room to grow” compared to its competitors who are already charging upwards of $500 to $600 per month.
Chan adds that the company’s higher rental rates which began in 4QFY2022 have not been fully factored into its topline, with Centurion expecting the full impact of its rental revenue growth to emerge over the next six to 18 months.
Given the shortage of bed supply across Singapore, Centurion may be allowed to secure lease extensions across its Quick Built Dormitories (QBDs) which are scheduled to come to term in 2024 to 2025. Additional tendering opportunities include new QBDs previously used for Onboard Centres (OC) or Community Care Facilities (CRF).
Meanwhile, the analyst also notes that the Ministry of Health (MOH) is seeking an operator to retrofit and manage hostel-type accommodation for foreign healthcare workers at five different sites across Singapore. The hostels will adopt a co-living, hostel-type accommodation concept and could present a possible diversification revenue stream for Centurion, says Chan.
He believes Centurion’s valuations are attractive at just 5.5x core FY2023 price-to-earnings (P/E) and 0.49x price-to-book value (P/BV). The recent doubling of interim dividends to 1 cent represents a “decent” 4.7% annualized yield and could see further upside given its low payout of only 25%, adds Chan. His unchanged target price of 58 cents is pegged to a 7.5x core FY2023 P/E.
Centurion is also on track to delist from the Main Board of the Hong Kong Stock Exchange (HKEX) and focus its existing primary listing on the Singapore Exchange (SGX).
Based on the indicative timeline, the HKEX withdrawal is expected to happen around end-October and will provide cost savings of some $400,000 annually. With 8.26% of total shares held under HKSCC Nominees Limited as of March 3, the transfer of shares from Hong Kong to Singapore will increase the total number of shares to be traded on the SGX and hopefully improve share liquidity, Chan says.
As at 1.32pm, shares in Centurion were trading 0.5 or 1.21% up at 42 cents.
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