Results Analysis: Results in line; regulatory updates could be provided soon

  • 1H21 revenue and core earnings in line, both representing c.51% of our full year forecast
  • Australian and UK PBSAs and Singapore PBWAs dragged on 1H21 performance
  • PBWAs in both Singapore and Malaysia to fare better in 2H21; PBSA outlook for Australia and UK looks mixed
  • Balance sheet on improving trend; Net debt-equity at 1.04x (2H20: 1.07x)

What’s New
Pandemic continues to affect occupancies at PBSAs. PBSA revenue declined to S$15.7m in 1H21 (-25.3% y-o-y, -42.2% h-o-h) as the pandemic continues to weigh on demand for international education. Australian PBSAs fared worst as occupancies tanked 41.4ppt y-o-y to 27% in 1H21 amid a 0 COVID stance adopted in the country. This compares to the UK where PBSA occupancies actually improved 3.0ppt h-o-h in 1H21 to 66% despite COVID-19 cases reaching a record high in January 2021.
PBWA revenue improves from low base in 1H20. PBWA revenue rose 17.7% y-o-y but declined 28.7% h-o-h to S$48.5m in 1H21. This improvement on a y-o-y basis was due to the low base and enforcement of worker living standard regulations driving demand for Malaysia PBWA. The decline on a h-o-h basis was attributed to a one-off drop in demand for Singapore PBWAs as some workers returned to their hometowns after the lifting of restrictions in 3Q20.
Our View
Regulatory uncertainty could clear up soon. The Singapore authorities have been reviewing standards surrounding workers accommodations in Singapore since last year and could be set to announce the results of their review. Centurion has been actively engaging the authorities and understands that the regulations are likely to provide a sufficient timeframe (with possible support) for dormitory operators to adapt to the changes. We agree with Centurion’s assessment but without hard facts hesitate to turn bullish on the stock. Our primary concern lies in the significant reduction of capacity at existing dormitories which would in turn affect operating margins for the Singapore PBWAs if bed rental prices cannot be raised. A longer timeframe to adapt does not change the fact that the ratio of beds to area has been reduced although we do support the welfare merits of such a change.
Singapore PBWA demand to return progressively and not in a deluge. A 6 August Ministry of Manpower update stated that new entry applications from higher risk countries will only be accepted from a later unspecified date. This is because rescheduling efforts are ongoing for applications that were affected by the tightening in early 2021. Given that a vast majority of foreign workers hail from countries that are high risk, we think demand for Singapore PBWAs and in turn occupancies will improve from the 82% in 1H21 but may not exceed the 90% occupancy level.
PBSA performance between UK and Australia likely to diverge in 2H21. Australia’s relatively low vaccination rate, 0 COVID stance and a return of COVID-19 cases has led to new pandemic restrictions being implemented in 2H21. We are therefore not expecting any improvements in Australia PBSA occupancies. On the other hand, the UK has steadily reopened even as COVID-19 cases rise. The relaxation of restrictions has bode well for Centurion with the Group having pre-sold half of its beds in its UK portfolio for the upcoming semester. Expect occupancies of UK PBSAs and Australia PBSAs to diverge in 2H21.
Maintain HOLD with TP of S$0.38.