UOBKH keeps 'buy' on Centurion following robust PWBA demand

Khairani Afifi Noordin
3-min read

Centurion expects PBWA rental reversion to trend higher in 2023 and 2024.

UOB Kay Hian analyst Adrian Loh has kept “buy” on Centurion Corp OU8 following better-than-expected demand for purpose-built workers accommodation (PBWA), the company’s largest profit contributor.

Centurion is experiencing healthy demand for its PWBA assets in Singapore as rents in the private residential sector have increased materially in the 12 months. Companies that did not previously require accommodation for its workers are now a new source of demand as they assist their workers in more affordable housing options, notes Loh.

This demand will remain very robust in 2023, underpinning Centurion’s results for at least the next 12 to 18 months, he adds.

“While Singapore PWBA saw only 2%-3% rental reversion in FY2022, Centurion expects this to trend higher in FY2023 and FY2024 as some of its contracts roll off in the next six to 12 months and it is able to re-price to a higher level. In addition, management believes that the demand and supply will take more than six months to get to an equilibrium,” Loh says. Centurion’s final year ends in December.

Additionally, Centurion also has a new project with Jurong Town Council (JTC), Loh highlights. In January, the company was awarded a tender by JTC to develop and operate a new 1,650-bed purpose-built dormitory (PBD) by 2025, with the former holding a 51% stake.

“The land parcel involves a 30-year lease and is situated at Ubi Avenue 3, which is interesting given that this is in the east of Singapore versus Centurion’s current assets which are all in the west. Management stated that Singapore’s western area is currently experiencing a shortage of quality PBD supply,” he adds.

Meanwhile, on the purpose-built student accommodation (PBSA) front, Centurion has noted a new trend of students wanting more private rooms with en-suite bathrooms. The company has therefore planned for asset enhancement initiatives to cater to this trend in Australia and the UK which will lead to higher asking rents. However, Loh points out that Centurion was not able to provide any capex guidance for such projects.

He also highlights Centurion’s high debt levels — while the company ended FY2022 with over $68 million in cash, it still had a net debt to equity ratio of 0.84x. The company reported that its average long-term bank debt maturity was around six years. Loh forecasts that the company’s interest cover will drop to 3.4x in FY2023 versus 4.2x last year.

UOBKH has largely maintained its net profit forecast for FY2023, but upgraded its FY2024 earnings estimate by 10%. This is on the back of higher rental rates for Australian and UK PBSA as international students  — particularly from China — return to the sector in the next academic year as well as higher rental reversions in the PBWA sector in Singapore due to higher-than-expected demand conditions.

Koh has revised his target price slightly lower to 43 cents from 45 cents previously as UOBKH rolls forward its valuation year to FY2023. The target price is an aggregate of both P/E and P/B valuation methodologies.

UOBKH’s P/E target multiple of 5.7x is 1 standard deviation above Centurion’s past five-year average of 4.8x and results in valuation of 42 cents, while its P/B target multiple of 0.5x is 44 cents.

As at 9.32am, shares in Centurion are trading flat at 34 cents.

 

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