Centurion Corp

Price targets:

61 cents INITIATE ADD (CGS-CIMB Research)

47 cents NEUTRAL ( RHB Group Research)

52 cents BUY (DBS Group Research)

CGS-CIMB Research is initiating coverage on Centurion Corporation, the provider of purpose- built worker accommodation ( PBWA) and purpose- built student accommodation (PBSA), with an “add” recommendation and a target price of 61 cents.

In particular, lead analyst Ervin Seow likes Centurion’s consistent growing of its accommodation capacity through developments and acquisitions.

As of 3QFY2019 ended Sept 30, 2019, the group has a total of close to 65,000 beds, spread across 32 properties in six countries. PBWA contributed to 67.1% of group revenue in FY2018, with PBSA accounting for the remaining 31.4%.

“We think the under-supply in PBWA and PBSA segments could continue due to tighter regulations and enforcement in PBWA and growth in university enrolment,” Seow says in an initiation report on Jan 7.

Centurion is expected to see a further 15.2% growth in capacity over the next two years, with the addition of 3,600 beds at Tampoi II and 177 beds at Archer House in FY2020, followed by another 6,100 beds at Juru in FY2021.

As such, Seow is forecasting earnings growth of 7.7% for FY2020 and 13.8% in FY2021.

“Going forward, we think there is strong potential for further growth of PBWA in Malaysia due to regulations relating to a minimum standard of housing for workers that reduce non-PBWA accommodation supply, as well as strong construction and manufacturing activity growth that should translate into stronger tenant demand,” says Seow.

Meanwhile, he believes Centurion’s asset-light fund management platforms provide a good opportunity for the group to scale up quickly and recycle capital.

The group now has two PBSA funds with about $200 million in commitments and seven assets.

In the long term, Seow sees the possibility of Centurion continuing to build its portfolio, and working towards a spin-off of its PBSA assets into a REIT, on the back of strong investor interest in the asset class.

“At its current price, we estimate Centurion offers 39% upside potential with a FY2020F dividend yield of 5.4%,” says Seow. —