Centurion

Centurion: FY15 performance trailed expectation. 4Q15 net profit crumbled 90% y/y to $7.5m due largely to one-off items.

For the quarter, the group booked a fair value gain of $4.8m on investment properties, as well as a $4.8m impairment to the carrying value of associate Lian Beng-Centurion (Mandai). This compares to the $62.8m fair valuation gains in FY14. Adjusting for these items, core earnings would have declined a less disconcerting 10.3% to $9.1m.

Revenue climbed 8% to $28.3m following the TOP of Weslite Woodlands workers dormitory, and on higher rental rates and improved occupancies.

Gross margin slipped 2.5ppt to 63.7% due to higher fixed costs at Weslite Woodlands and CSL Selegie student accommodation, both of which are still in the midst of ramping up occupancy.

Finance costs soared 82% to $5.3m due to the financing of Weslite Woodlands.

Net gearing stood at 0.5x (+5ppt y/y).

On outlook, management believes the long-term demand for high quality workers accommodation in Singapore remains positive, especially in light of policy moves towards purpose-built dormitories.

However, the current weak Singapore economy, new supply of 57,000 dorm beds island-wide, and a slower ramp up rate of Weslite Woodlands amid the O&M industry slump are expected to hamper on its short term prospects, even as occupancies at Toh Guan, Mandai, and Tuas remains close to full.

In Malaysia, rental rates have been softening amid the manufacturing slowdown and weaker ringgit.

In the pipeline, 19,000 beds from Weslite Papan in Singapore this year, as well as two dorms in Penang in 2017/18 are expected to buoy its earnings growth, while the student accommodation business is expected to remain resilient.

While Market Insight likes Centurion’s long term potential, its share price performance may be weighed by near term challenges. As such, we are closing our position in Centurion, realising a loss of 1.3% since the start of the year against the 7.4% decline in the STI.

Final DPS of 1¢ maintained, bringing full year dividend payout to 1.5¢ (unchanged), implying a 4% yield

Centurion is currently trading at 8.2x trailing P/E and 6.7x FY16e consensus P/E.