[SINGAPORE] Maybank on Friday (Mar 28) initiated coverage of Centurion with a “buy” call, on optimism over the tighter supply of worker dormitory beds in Singapore and strong construction demand.
It also set a price target of S$1.45 – 19.8 per cent or S$0.24 above its latest closing price of S$1.21 on Apr 1.
Maybank analysts Jarick Seet and Eric Ong said in a research note that the purpose-built accommodation operator is poised to benefit from “favourable demand-supply dynamics” in the Republic.
This comes as Centurion in February posted a net profit of S$226.6 million for its second half ended Dec 31, nearly doubling its earnings from S$114.8 million for the same period a year ago.
This factor, alongside the group’s “clear pipeline of capacity expansion”, justifies a forward price-to-earnings ratio of around 10 times for Centurion, they said.
Poised to gain from construction boom, tighter supply
Ong and Seet noted that the Building and Construction Authority forecasts up to S$53 billion worth of construction contracts in 2025, with construction demand sustaining at around S$39 billion to S$46 billion between 2026 and 2029.
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Demand for worker dormitories is set to remain strong as more foreign workers are expected to be brought in to support Singapore’s increasing infrastructure projects, factory production, and other labour-intensive requirements, they said.
This signals a “large addressable market” for Centurion.
Favourable demand-supply dynamics will continue to buoy positive rental rate revisions, especially as the industry’s supply of dormitory beds is set to tighten.
They noted that 9,000 beds will be taken out of local supply in 2025 as the lease to operate one of the larger dorms by its competitor will not be renewed.
The company’s management is also projecting a further supply squeeze by 2027, as existing worker dormitories will need to be refurbished to meet standards under the Ministry of Manpower’s Dormitory Transition Scheme.
“The group’s dorms, particularly Westlite Toh Guan and Westlite Mandai, can serve as ‘swing sites’ during such transition shifts,” said Ong and Seet.
Growing student accommodation portfolio in Australia, UK
With student accommodation presenting a “unique alternative asset” that has drawn “strong interest” from institutional investors, the group is expanding its student accommodation portfolio in Australia and the UK, added the Maybank analysts.
They noted that outlook for the student accommodation sector is positive for these markets, as reflected in the group having notched higher financial occupancy rates in the 2024 financial year compared with FY2023 in both places.
Its purpose-built student accommodation assets in Australia achieved higher average financial occupancy of 96 per cent in FY2024, up from 88 per cent in FY2023.
Demand for purpose-built student accommodation beds was similarly strong in the UK market in FY2024, as the group notched a “strong” financial occupancy rate of 98 per cent, up from 93 per cent a year earlier.
Demand for student housing in the UK should stay resilient, spurred by rising international student numbers as universities are raising enrolment, supporting a long-term positive outlook for the sector, highlighted Ong and Seet.
With Australia facing a shortfall in beds, the group is looking to increase its bed count in Melbourne and Sydney to address the ongoing supply-demand gap, they added.
Capital-recycling initiatives
The analysts noted that Centurion is considering spinning-off some of its accommodation assets into a real estate investment trust. It could potentially issue a dividend in specie of some units in the proposed trust to reward shareholders, they said.
Such capital-recycling initiatives could drive a stock rerating as well, they added.
