Brokers' Take

Centurion Corporation|

Neutral (maintained)

March 6 close: $0.425

Target price: $0.41

RHB Research Institute, March 6

FY2018 revenue was $120.1 million or a 12 per cent year-on-year decrease, due to the lease expiry of the Westlite Tuas dormitory, which ceased operations in December 2017.

The drop was partially cushioned by better performance of Malaysia's purpose-built workers accommodation (PBWA), ASPRI-Westlite Papan PBWA, and the UK purpose-built students accommodation (PBSA).

As a result, core net profit after tax decreased by 20 per cent for the year to $39.6 million.

Net profit surged 124 per cent due to one-off fair value gains of $48.6 million, mainly derived from the UK student accommodation portfolio.

Excluding one-off items, the group registered a drop in core net profit of $39.6 million, down 20 per cent year-on-year, due to the absence of Tuas revenue.

Net profit was also impacted due to higher finance expenses on higher interest rates and additional borrowings.

Due to the absence of Tuas, gross profit margin improved from 69 per cent in FY2017 to 72 per cent in FY2018, as it had contributed to a lower gross profit margin.

We are expecting 7,248 additional beds to add to the group's revenue this year - with 6,600 beds coming from Bukit Minyak PBWA, 280 beds from Dwell East End Adelaide PBSA,160 beds for RMIT Village AEP PBSA, and 208 beds for Dwell Dongdaemun PBSA in South Korea.

We believe it will take about 6-9 months to ramp up occupancy rates.

Lower rental rate is also expected for Dwell Dongdaemun to entice potential students to stay with Centurion, as it is the group's first PBSA in Korea.

We believe that the next leg of growth would come from the ability to size up its second student accommodation fund portfolio.

With an aggregate committed capital of $70 million and a drawdown of merely $8.8 million, the group is armed with capital to finance its acquisitions.

The asset-light business model helps Centurion to enlarge its asset base while maintaining current capital structure.

We believe it will take some time for new accommodation to ramp up performance, and also identify yield accretive assets for the fund.

Key downside risks are low occupancy, weakness in rental rates, changes in government regulations and unsustainable capital structure.

The converse represents the upside risks.

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