Excerpts from UOBKayHian report
Centurion Corp (SGX: OU8)
- Centurion Corp reported better-than-expected 1Q22 revenue of S$45m, up 47% yoy and forming over 30% of our full-year revenue estimates.
- All business segments enjoyed double-digit revenue growth due to a combination of higher occupancies and new revenue streams as economic recovery and the reopening of international borders provided strong tailwinds.
Maintain BUY. Target price S$0.43.
Strong growth from its main revenue driver
Centurion Corp’s (Centurion) better-than expected 1Q22 revenue of S$45m (+47% yoy) was driven by its Purpose Built Workers’ Accomodation (PBWA) assets in Singapore which saw volume increasing.
The two additional Quick Build Dormitories (QBDs) started operations in 2Q21 and 4Q21. The company also witnessed continued recovery in its PBWA occupancy rates on a yoy basis.
Centurion Corp other segments continue to see gains as well
The company’s Purpose Built Students’ Accommodation (PBSA) segment generated a 43% yoy increase in revenue, resulting from a strong recovery in Australia and the UK with revenue up 58% and 56% yoy respectively.
The reopening of borders after the COVID-19 pandemic has led to higher demand for student accommodation with the outlook likely to remain strong due to robust bookings for the 2022 academic year in the UK.
Inflation – smaller-than-expected impact
The key operating cost that has markedly increased on a yoy basis is energy and while this cost cannot be passed on within the PBSA segment until the lease is up, PBWA contracts exclude energy costs.
Thus, energy costs are borne separately by Centurion’s clients, thus preserving its margins within this segment which contributed over 73% of the company’s revenue in 1Q22.
Positive rental reversions seen
During 1Q22, the company benefitted from positive rental reversions at most of its geographies with low to mid-single-digit increases.
Singapore has clearly been the key driver and in the past 3-6 months, the pace of foreign workers returning to various industries has increased.
Thus, the 15% decline in worker volumes in 2021 has mostly recovered, with faster recovery seen in certain sectors like oil & gas, petrochemicals and construction while shipping and marine has seen a relatively slower recovery.
Centurion Corp new acquisition in the UK
On 20 May 22, Centurion announced that it had acquired a 103-bed freehold student PBSA in Nottingham, UK, at a purchase consideration of £10.4m.
This asset, built in 2018, will complement the company’s two existing PBSA assets in Nottingham, namely dwell Castle Gate Haus and dwell Archer House.
Demand for student accommodation will likely come from Nottingham Trent University and the University of Nottingham.
Notably, the Nottingham City Council estimates that there will be a shortfall of 2,000 PBSA beds in Nottingham even after all current pipeline beds are completed, and a further shortfall of 5,000 PBSA beds by 4Q24.
Maintain BUY with target price of S$0.43. Our target price is an aggregate of both PE and P/B valuation methodologies.
We have revised down our 2022E PE target multiple to 6.2x – this is 1SD above the company’s past five-year average of 5.3x which excludes the abnormal forward PE multiples seen in 2019-20 and results in a valuation of S$0.37.
Our 2022 P/B target multiple of 0.6x (in line with its past five-year average P/B) is $0.48.