• Singapore’s 2^nd largest Purpose-Built Workers’ Accommodation operator by number of beds and the only Purpose-Built Workers’ Accommodation provider in Malaysia
• Exposure to rising demand of mobile student population in UK and Australia
• Initiate with “Buy” rating with S$0.42 TP, implying an upside 53% (including dividends).

 Investment Highlights

1. Demand for workers’ and students’ accommodation is resilient. We believe that demand for student and workers’ accommodation remains resilient even in a weak economic environment. The accommodation business deals with the most rudimentary needs which provides for stable demand and a defensive business model. Centurion is the only listed pure play professional student and workers’ accommodation in Singapore. In our initiation report we argue that policy changes and supply and demand dynamics in Singapore are favourable for Centurion’s Purpose-Built Workers’ Dormitories. The strong and growing demand from mobile students for Purpose-Built Student Accommodation in United Kingdom and Australia supports the top-line. And in Malaysia, Centurion’s value proposition as the only Purpose-Built Worker Dormitory supports the supply of skilled labour.
2. Concerns over high debt levels underrates the strong cash flow generated. We believe that the high debt levels and concerns over the expiration of the land lease for Westlite Tuas in April 2017 have cast a pall on Centurion’s share price. In our Analysis and Forecast Assumptions section, we show that even without the contributions from Westlite Tuas, Total Debt to EBITDA less dividend remains at a lower multiple than the remaining lease for ASPRI-Westlite Papan and Westlite Woodlands. This means cashflow after dividends are able to service total debt before the land lease on ASPRI-Westlite Papan and Westlite Woodlands expires. In addition, properties in United Kingdom, Australia and Malaysia are mostly freehold or have long leasehold period thus supporting a long runway to service debt.
3. Board of Directors and Senior Management own substantial stakes in the Centurion Corporation Limited. We believe that the substantial stakes owned by members of the Board of Directors and Executive Directors in the Senior Management team will help align corporate decisions to shareholders’ interests.

Investment Actions

We initiate coverage on Centurion Corporation Limited with a “Buy” rating and a target price of S$0.42 based on discounted cash flow (DCF) methodology.  This implies an upside of 37.53% (including dividends) from its last closing price.

Company Overview

Centurion Corporation Limited was formerly known as SM Summit Holdings Limited. SM Summit Holdings Limited was primarily in the optical disc manufacturing and services industry. In August 2011, SM Summit Holdings completed a reverse takeover transaction that gave the group worker dormitory assets and on 17 October 2011, SM Summit Holdings resumed trading as Centurion Corporation Limited.

Centurion’s revenue is derived from:

1. Provision of Purpose-Built Workers’ Accommodation (PBWA) in Singapore and Malaysia through its Westlite brand. Centurion designs, develops, owns and manages the dormitory assets.
2. Provision of Purpose-Built Students’ Accommodation (PBSA) in Singapore, United Kingdom and Australia. Centurion owns and manages the dormitory assets except CSL Selegie student dormitory in Singapore which is recognised under an operating lease of 3+3+2 years with effect from 2015.
3. Manufacture and sale of optical storage media. In 2011, optical sales comprise 56.8% of total sales but by 2015, optical sales comprise 4.8% of total sales.

Figure 1: Centurion’s Accommodation Business growth profile

Investment Thesis

1. Demand and Supply dynamics favourable for Singapore Workers’ Dormitory
2. Regulatory pressure to improve quality of foreign workers’ dormitory adds traction for professionally managed purpose built dormitories and reduces price competition.
3. Undersupply of Purpose-Built Student Accommodation in Australia and its concomitant effects on city planning
4. UK Student Accommodation industry is maturing but continues to present an attractive return on investment with stable growth

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