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RHB lifts Centurion Corp’s TP to 51 cents as headwinds evolve to tailwinds

·3-min read

Centurion Corp's revenue rose 40% y-o-y to $90.5 million and core PATMI surged 42% y-o-y to $29 million.

RHB Group Research analyst Jarick Seet has kept his “buy” rating on Centurion Corp after the company’s results for the 1HFY2022 ended June indicated a “solid recovery in demand” for its worker accommodations. The company’s demand for its student accommodations have remained intact as well.

On this, the analyst has upped his target price to 51 cents from 43 cents previously.

Centurion Corp had, on Aug 11, reported strong results for the six-month period, with revenue rising 40% y-o-y to $90.5 million and core PATMI surging 42% y-o-y to $29 million. “This affirms our view that both of its workers and student accommodation businesses are recovering rapidly,” says Seet.

Revenue from its worker accommodation segment expanded by 38% y-o-y to $67 million in 1HFY2022, as the demand for labour spiked up post lifting of Covid-19 measures.

Centurion Corp’s average occupancy rate in its Singapore worker dormitories recovered to over 95%. “We also expect a potential rise in its rental prices to mitigate the rise in operational costs it will incur due to inflation –and the company may pass on the cost increases to its customers,” Seet adds.

Moreover, the group’s student accommodation business in 1HFY2022 grew by 43% y-o-y to $22.5 million, mainly due to the improvement in the occupancy rates of its facilities in the UK, Australia, the US and Korea. Pre-leasing for 2022-2023 is ongoing and bookings for the year are also strong.

Centurion has also acquired a 103-bed freehold asset in Nottingham in the UK, which will be completed in 4QFY2022 and should boost overall profitability. Additionally, the Centurion US Student Housing Fund has commenced the sale process of its US assets (where the company owns 28.7% of the units), as management continues its strategic review of its portfolio assets.

“We think that it will also sell its UK assets if a good offer comes along, which should help to reduce gearing even further,” says Seet.

In addition, with inflation rates spiking up – especially in the UK and the US – the analyst thinks Centurion Corp is likely to raise its dormitory rates by the end of the year, which will be positive for overall numbers.

“With construction activities resuming actively and demand for workers surging, coupled with global Covid-19 restrictions loosening, we expect its worker and student accommodation business to continue recovering strongly,” writes Seet.

Some risks Seet foresees include new dormitory specifications to be announced that could likely lower total bed capacity and Centurion Corp needing more capex to enable it to tailor facilities to meet the new specifications.

As the stock is trading at just 5.6x FY2022 P/E and at a 52% discount to its net asset value (NAV) of 79 cents, the analyst finds Centurion Corp to be undervalued – even though the company has upbeat growth prospects.

As at 9.34am, shares in Centurion Corp are trading flat at 38 cents at a FY2022 P/B ratio of 0.4x and dividend yield of 5.3%.

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