Centurion Corporation

[Behappyalways]

kind of Peter Lynch type of play....

9 months ago I  was reading the straits times and I came across this article...

https://www.straitstimes.com/opinion/for...rm-rentals

The 'complaint' enticed me to look at this company and the financials and prospects resulted in me 'swinging my bat at it'

Looking at its FY2022, the PE and price over net operating cash flow then are less than 5. The company will continue to grow as it continues to adjust its rentals. From what I read, the company is charging much lower than what is stated in the straits times forum. Hence room for increased rentals.

Fy2022 result
https://links.sgx.com/1.0.0/corporate-an...d11a3ec090

The negative I can think of is their huge debt level. They are still piling on debts as they are confident of higher demand. Hence building more dormitories.

Their 1h2023 result
https://links.sgx.com/1.0.0/corporate-an...1247752994

For fy2022, they gave a total dividend of 1.5 cents of which 0.5 cents was the interim dividend.

For 1h2023, the company increased the interim dividend to 1 cents.

I expect them to give a higher dividend for 2h2023 (1 cents for fy2022).

Hence total dividend expected for fy2023 should be at least 2.5 cents ( 1 cents for 1h2023, 1.5 cents for 2h2023), about 6% yield.

The company should continue to do well till 2025/2026. There's still a lot of construction going on to make up for the COVID break.

Policy will drive more demand
https://m.youtube.com/watch?v=UwmLTdDIMYk


Anyway the result will be out tomorrow...
https://links.sgx.com/1.0.0/corporate-an...bc050da3ff

[weijian]

Stripping off the FV gain/losses, Centurion's ROE is ~7% and since it is ~100% geared, effective ROE has to be divided by 2, and it becomes ROE~3%.

Of course, this kind of ROE is typical of companies that hold investment properties and then revalue them on the balance sheet annually. So, maybe this is why Mr Market values it at a low single P/E?

To their credit, I remember they did try to spin off their assets into a REIT but it was rejected by SGX as it was considered a chain listing. If this company decides to go to an "asset light" direction like Keppel is doing, then there is probably some value to be unlocked!

[Behappyalways]

Centurion reports 114% y-o-y increase in earnings for FY2023 of $153.1 mil
https://www.theedgesingapore.com/capital...3-1531-mil


Fy2023
https://links.sgx.com/1.0.0/corporate-an...597c5de39d


Director's shareholdings
https://links.sgx.com/1.0.0/corporate-an...62dd46c938


Earnings per share for Fy2023 was 18 cents per share due to revaluation of properties. Core earnings was 8.2 cents Vs 6.8 cents the previous year.

Net operating cash flow was $123m or around 15 cents per share.

This year(fy2024)most likely the company will continue to post higher earnings as contracts are renewed at higher rate while for next year their new dormitory will add to capacity for Fy2025 when it is completed in Dec 2024.

So I expect earnings and dividend to continue to go up.

Their market cap is around $330m while cashflow from net operation is $123m and the majority shareholders owned more than 50% of the company. This company will not be undervalued for long.

[weijian]

Their market cap is around $330m while cashflow from net operation is $123m and the majority shareholders owned more than 50% of the company. This company will not be undervalued for long.

Hi Behappyalways,

I don't think it is fair to use 123mil as the "cashflow representation" here. If we look closer at the cashflow statement, we still need to deduct the interest expenses and lease liabilities (which total ~56mil). So the effective operating cash flow is really just half of what you represented.

That said, with the changes in dorm conditions that will be enforced in the next few years, are operating dorms going to be as profitable going forward?

Concerns over cost and reduced capacity, but operators see need to raise dormitory standards
https://www.straitstimes.com/singapore/c...-standards

[donmihaihai]

beside lease payment and interest, when the group has large NCI, then a portion of the cashflow does not belong to shareholder. In this case, I would say 22M. positive side will be JV and associate earning or cashflow not included.

next, when rental is based on very short term leases, then earning include high return of capital or ROE/ROC got to be high, else why bother.

[Behappyalways]

In today's straits times....

Centurion in pole position as workers’ dorms may be a top investment for 10 to 15 years
https://www.straitstimes.com/business/co...o-15-years

[Behappyalways]

The earnings probably grew much faster than the revenue growth as growth in revenue are mostly due to rental rate increases...meaning cost increases much slower than revenue

Higher rental amid recovery in demand helps lift Centurion's 1QFY2024 revenue by 30%
https://www.theedgesingapore.com/capital...revenue-30

kind of Peter Lynch type of play....

9 months ago I  was reading the straits times and I came across this article...

https://www.straitstimes.com/opinion/for...rm-rentals

The 'complaint' enticed me to look at this company and the financials and prospects resulted in me 'swinging my bat at it'

Looking at its FY2022, the PE and price over net operating cash flow then are less than 5. The company will continue to grow as it continues to adjust its rentals. From what I read, the company is charging much lower than what is stated in the straits times forum. Hence room for increased rentals.

Fy2022 result
https://links.sgx.com/1.0.0/corporate-an...d11a3ec090

The negative I can think of is their huge debt level. They are still piling on debts as they are confident of higher demand. Hence building more dormitories.

Their 1h2023 result
https://links.sgx.com/1.0.0/corporate-an...1247752994

For fy2022, they gave a total dividend of 1.5 cents of which 0.5 cents was the interim dividend.

For 1h2023, the company increased the interim dividend to 1 cents.

I expect them to give a higher dividend for 2h2023 (1 cents for fy2022).

Hence total dividend expected for fy2023 should be at least 2.5 cents ( 1 cents for 1h2023, 1.5 cents for 2h2023), about 6% yield.

The company should continue to do well till 2025/2026. There's still a lot of construction going on to make up for the COVID break.

Policy will drive more demand
https://m.youtube.com/watch?v=UwmLTdDIMYk


Anyway the result will be out tomorrow...
https://links.sgx.com/1.0.0/corporate-an...bc050da3ff

[weijian]

hi Behappyalways,

It is straightforward if this is a relatively unlevered business with fixed costs. But I remember Centurion once wanted to REIT-ed its properties but got rejected due to "chain listing" issue. So this means its financials may be performing more like a REIT, in this case a dorm REIT than a "business with fixed costs".

Case in point, recently Frasers Hospitality Trust just reported higher revenue but lower DI due to higher financing costs. Not saying that Centurion is in the same situation (matter of fact, I think Centurion probably reported higher YoY 1Q24 profit) but to think that it is "much higher", one may be in for a surprise.

[Behappyalways]

I used to do this many years ago, looking at financial statement line by line and doing predictions....will interest expense be higher??? How much higher?

Always a prediction....not an exact science.

For interest expense...

Normally I will look at the latest financial statement (for centurion it will be fy2023)

Then I look at the rate of growth of interest expense for 1st half and then full year( quarterly will be better gauge but no quarterly financial statement for this company)

The rate of growth came down from 31% to 13% for full year.

Then I look at debt level...is there an increase in debt ( for Fraser Hospitality Trust, there was an big jump in debts hence higher interest expense). For Centurion, there was a little decline in debts plus recently they have completed selling of a dormitory in Malaysia ...meaning probably less debts if cash proceeds are used to reduce debts...

Other things to consider is interest rate changes, debt duration ( 5 years for centurion) etc etc...hence my guess is that interest expense growth should be lower than the 30% growth in revenue....maybe lower than the 13% growth for fy2023...unless they are going to borrow more for more expansion.

Rental rate increase is like raising a product price...

When you raise the price by 30%....

You probably would not need to raise the number of workers by 30% ...

You don't need to increase your depreciation by 30%....

As for interest cost... probably less than 30%

If there are no unforeseen exceptional losses or writedowns, then most likely net profit will be higher than revenue as rate of increase in cost would be lower than revenue.

Last but not least their core earnings for last year was 8.2 cents.