Foreign labour bottoming
- FY21 core PATMI rises 11.4% y-o-y to S$143.0m
- FY22 and FY23 PBWA and PBSA occupancies expected to bounce back as workers and students return
- Singapore PBWA regulatory overhang a concern but impact will likely be spread out over years
- Maintain HOLD with higher TP of S$0.42; suspending coverage on reallocation of resources
Investment Thesis:
Global reopening to buoy Singapore, Australia, and UK accommodation revenue. Singapore’s purpose-built worker accommodation (PBWA) occupancies are expected to improve progressively over FY22 and FY23, with the foreign labour crunch targeted to be resolved in the next few months, according to a senior government official. In a similar vein, a new academic year and the relaxation of border restrictions in Australia and the UK should mark a point of recovery for student arrivals and, in turn, purpose-built student accommodation (PBSA) occupancies.
Returning dividend play. We are forecasting for Centurion to return as a dividend play, underpinned by improved occupancies across its PBSA and PBWA segments. FY22F and FY23F DPS are projected to come in at 1.5 Scts and 2.0 Scts, respectively, representing a yield of 4.2% and 5.6%.
Regulatory overhang remains, but impact could be dampened. New regulations for workers’ dormitories are expected to reduce the capacity at said dormitories, but early information points to rental rates remaining steady. Still, additional capex may be incurred in adapting the dormitories to these new standards, although we believe this will likely be over time instead of as an upfront lump sum.
Valuation:
Maintain HOLD with DCF-based TP of S$0.42 based on a WACC of 6.2% and terminal growth rate of 2.0%. Our TP implies a 7.3x FY22F PE, which is close to Centurion’s four-year mean forward PE of 7.8x. We are suspending coverage on the stock as we reallocate research resources.
Where we differ:
We are forecasting an accelerated debt repayment schedule on concerns of higher interest rates.
Key Risks to Our View:
Unfavourable changes in regulatory environment, foreign exchange volatility, sustained deterioration in economic outlook for Singapore and Malaysia affecting foreign worker demand, and implementation of border restrictions