Centurion

Centurion: 1Q15 results in line with street estimates, as core net profit soared 70% y/y to $9.4m on higher revenue of $25.3m (+44%).

Top line growth came from maiden contributions from student housing in Australia (acquired in Feb '14) and UK (Sep '14), as well as higher occupancy rates at its worker dormitories and expanded bed capacity at Westlite Toh Guan. Occupancy rates at the Group’s Malaysian dormitories continued to improve. The 5,300-bed Westlite Tampoi opened in Jan '15 with a healthy take-up rate.

Its legacy optical disc manufacturing business saw a slight decline in sales (-$0.8m) from continued weakening of demand for physical optical disc media, but remained cash flow positive.

Gross margin improved to 68% from 63%, underpinned by higher rental rates and additional revenue from the increased bed capacity.

Bottom line was weighed mainly by a steep drop in associate profit to $1.5m (-92%) due to absence of a one-off $17.3m gain from sale of M Space factory units recognized in 1Q14, as well as higher finance costs of $3.2m (+125%) due to additional financing for its UK acquisitions and development of ASPRI-Westlite Papan in Singapore.

With higher borrowings to finance its projects under construction, the group's net gearing climbed to 1.3x from 1.1x with total debt of $527.3m (+21.8%). Nevertheless, the group remained cash flow positive generating $12.8m from operations.

Going forward, the group has a planned pipeline to grow its accommodation portfolio from 45,662 beds at present to over 74,100 (+62%) by end-2017.

The outlook for Centurion's accommodation business remains sanguine, supported by stable demand for both its workers and student accommodation across Singapore, Malaysia, Australia and UK.

In Singapore, while new foreign worker dormitories totalling 30,000 beds have come into the market over the last six months, the impact has been minimal to the group. Continued demand is expected to be strong as a result of government enforcement actions, which has led to the closing down of illegal and factory converted lodging that do not meet safety and health regulations.

In Malaysia, the Group is gaining traction with its portfolio of 19,800 beds across six workers accommodation in Johor, where occupancy rate has now reached above 90%. The construction of the 5,500-bed Westlite Senai II is on track and expected to be completed in 4Q15.

Student accommodation in Australia and UK are operating close to full occupancy in this current academic year. With the healthy demand in both markets, management is confident that its assets are expected to perform well.

Market Insight continues to favour Centurion's unique business model and maintains its position in the Growth portfolio.

Counter surged to a high of $0.56 (+2%) in early hours following the positive set of results, valuing Centurion at 1.07x P/B. Bloomberg consensus has four straight Buy calls and average 12-month TP of $0.73.