• Maintain BUY, with higher SGD0.76 TP from SGD0.69, 17% upside. We stay positive on Centurion Corp and see growth driven by higher bed capacity, occupancy, and rental rates. CENT is in a sweet spot for purpose-built workers’ accommodation (PBWA) in Singapore, where demand for foreign workers outstrips dormitory bed supply. The stock currently trades attractively at -0.5SD from its mean P/E, ie below its 9-year historical mean. Our TP is based on 7.5x blended FY24F-25F P/E.

• 1H24’s earnings outperform. Revenue came in at SGD124m (+27% YoY) while core earnings was SGD48m (+47% YoY), above our expectations as headline earnings of SGD118m was boosted by one-off fair value gains. Revenue was driven by PBWA in Singapore, and purpose-built student accommodations (PBSA) in Australia and UK, which grew 34%, 20%, and 26% YoY to SGD85m, SGD8m, and SGD21m, on higher-than-expected rental reversions. It has also resulted in gross margin uplift to 76%. Occupancies of PBSA and PBWA remained strong at 98% and 95%. EBIT was SGD77m (+35% YoY), lifted by better operating leverage from higher rental rates. An interim DPS of 1.5 SG cents was declared, in line with expectations.

• Raise FY24F-26F core earnings. We attribute most of CENT’s outperformance to better bed rates, which have outpaced our assumptions. We have now imputed higher bed rates into forecasts. Consequently, our FY24F-26F earnings have increased by 10%, 12%, and 12%. Our TP is based on 7.5x blended FY24-25F P/E, and is raised accordingly by 11%.

• Positive outlook. We like CENT for being well-positioned to yield better rental rates in Singapore due to the dormitory supply shortage situation, and higher occupancy in Malaysia, as its increasing number of foreign workers are to be housed in purpose-built dormitories. These trends should continue to bode well for CENT. Growth will be driven by increase in bed capacity, which will expand by c.2,393 beds in FY24. This includes its recent entry into Hong Kong via two 66- and 89-bed PBSAs that are expected to be operational in Sep 2024. Otherwise, management continually assesses opportunities to review and rationalise its assets for capital recycling and portfolio expansion to deliver growth.

• Key downside risks. Our earnings forecasts are premised on better occupancies at the company’s PBSA assets and bed rates. Failure to achieve these revenue drivers pose downside risks to our estimates.

• ESG. Our TP includes a 2% discount to the intrinsic value as per our in-house proprietary ESG methodology, as CENT’s ESG score of 3 (out of 4) is one notch below the country median of 3.1.

Source: RHB Research - 19 Aug 2024