Centurion Corp

DMG & Partners Research, March 3

WITHIN Singapore's workers accommodation business, an additional 50,000-60,000 beds are expected to be delivered by the end of this year. This will increase the total supply of dormitory beds to 200,000-210,000, which falls well short of the demand created by the 500,000 work permit holders in Singapore.

The evident shortage of supply will continue to put upward pressure on rental rates and occupancy levels; coupled with Centurion's rapid expansion plans, we can expect the company to see strong growth from FY2013 to FY2016. All in all, we expect Centurion's gross and net margins to continue to improve. They grew 4 per cent and 5 per cent to 52 per cent and 28 per cent respectively in FY2013 due to:

i) increase in contributions from its accommodation business, and

ii) a 30 per cent decrease in contribution from the optical business. We expect optical discs' contribution to continue declining at a 30 per cent rate annually, and the unit to cease operations by the end of 2015. This would improve its margins as the optical business has been a drag on their earnings and margins.

Due to the company's strong performance in FY2013, management has declared a dividend of 0.6 Singapore cent, up 50 per cent from FY2012. However, its dividend payout will remain low as the company is on an aggressive expansion plan.

After the acquisition of RMIT village, we expect management to further diversify into the student accommodation business by making acquisitions focused on Australia and London. For this segment, 2014 will be an exciting year of expansion. Maintain "buy", with a discounted cash flow-based target price of S$0.82.

BUY