Centurion Corporation

Centurion risk having a capital call as they are required to right-size their PBWA in Singapore due to regulations. However, that is till >1 year away. In the meantime, sell peanuts while the circus is in town.

Yes, a lot of construction related firms has explored building their own dormitory but that still doesn't solve the bulk of issue. 160 workers probably is a small portion of ISO team's migrant worker force. On paper, it supposed to have significant cost savings but in reality, I didn't see those numbers on their P&L which means cost savings likely have been eroded by lower margin business, a reflection of the general construction business model.

There are also a lot of subcontractors who employ migrant workers but are unable to build their own in-house dormitory. While the bigger players who have the capability to do so, have probably already done it.

(23-10-2024, 10:59 AM)dzwm87 Wrote: Centurion risk having a capital call as they are required to right-size their PBWA in Singapore due to regulations. However, that is till >1 year away. In the meantime, sell peanuts while the circus is in town.

Hi dzwm87,

Understandably, no OPMI likes a cash call, especially if it messes with our position sizing. But in the ordinary course of business, if there has to be one, then it is better to have a cash call than debt, especially if cost of equity is much lower than cost of debt.

Mgt who are good capital allocators, somehow will be able to raise equity when it is cheap, and avoid raising equity when it is expensive. Of course, equity raising at premium cost could eventually turned out to be really cheap, or at least good deal for the OPMI on hindsight. For example, the Spore banks who raised capital in GFC2008 from a "position of strength" was one. But these are exceptions than the general rule.

P.S. I am not sure of Centurion's implied cost of equity if an EFR is done. But at least they haven't done any EFR in the last few years when interest costs rose. And if one is done in the future, it is definitely better than been done in the past. One could contrast them to many of their heavily leveraged peers....

My mistake....wrong posting....I have deleted it.

My apologies

(23-10-2024, 01:35 PM)weijian Wrote: Understandably, no OPMI likes a cash call, especially if it messes with our position sizing. But in the ordinary course of business, if there has to be one, then it is better to have a cash call than debt, especially if cost of equity is much lower than cost of debt.

Hi weijian,

I don't understand your point made here. In what situation when the cost of equity is lower than cost of debt? Obviously, if equity is cheap, the debt market will priced that in and made it more cheaper than equity. Equity in general, is more expensive than debt since equity investors will have to be compensated for taking equity risk in order to participate in the company's future profit growth.

(24-10-2024, 09:02 AM)ghchua Wrote:

(23-10-2024, 01:35 PM)weijian Wrote: Understandably, no OPMI likes a cash call, especially if it messes with our position sizing. But in the ordinary course of business, if there has to be one, then it is better to have a cash call than debt, especially if cost of equity is much lower than cost of debt.

Hi weijian,

I don't understand your point made here. In what situation when the cost of equity is lower than cost of debt? Obviously, if equity is cheap, the debt market will priced that in and made it more cheaper than equity. Equity in general, is more expensive than debt since equity investors will have to be compensated for taking equity risk in order to participate in the company's future profit growth.

hi ghchua,

Apologize for the confusion of the "cost of equity". The "cost of equity" you described is from the POV of the investor when making a decision whether to invest in an equity or not.

The "cost of equity" I am referring to, is more towards the consideration of capital allocator. Since this might be confusing, I suppose it calls for another durian analogy

Durian retail is seasonal - whether is it the supply or enthusiasm of durian lovers. During off-season, my durian stall made 10dollars net profit per season and my friends are willing to co-invest in my durian stall at 5x earnings --> 50dollars for a 10% stake in the business. During the on-season, my durian stall made 20dollars net profit per season. And thanks to all the durian talk chalked up by the media reporting of delicious durians with long snaking queues, my friends are now willing to co-invest in my durian stall at 10x earnings! --> 200dollars for a 10% stake in the business.

Now, my stall owes 50bucks to the Ah Long at 20% interest rates. Do I choose to hold on the debt (incurring interest rates), sell new shares to my friends in off-season (5x earnings or "cost of equity"=100/5=20%) or sell new shares to my friends in on-season (10x earnings or "cost of equity"=100/10=10%).

Essentially, I see "cost of equity" of issuing new shares as inverse of the implied P/E OR in other words, the earnings yield.

Hope I understand the queries correctly...

3 attachments copied from Centurion 2023 Annual Report

The first attachment shows the company preparation for the new Govt's 2027 Dormitory Transition Scheme. I think they are well prepared and might even take advantage of the scheme if other competing dormitories are not ready for it.

The second attachment is their long term debts and duration. The company earns about $100m each year from their net operating cashflow. So I seriously doubt the company will need a cash call. Furthermore the company are trying to be asset light and they have divested 2 properties in Malaysia.

The company had a good run in share price this year so many wonder if it is too overvalued now....

The 3rd attachment shows their bed rates in Singapore. It was less than $400 average for 2023.

The company should earn about 12-15 cents this year (core earnings).

The question on my mind right now is Can the company continues to grow in the next few years??? Can it grow 20% or more for the next few years???

Look at the potential adjustment in bed rates and new beds capacity, the likelihood of it continuing to grow is high. If that is so what should be appropriate PE?

5, 10, 15 or even 20??? If you think is 10, multiply by the earnings this year and look at the present share price....what do you think? Is it overvalued or undervalued....

Will the bed rates continues to rise? 2027 when the new scheme kicks in, who knows companies like ISOTeam might have to look for temporary accommodations for their workers and bed rates might see a big surge...

Why I am looking at the bed rates...if you understand P&L statement, when one is able to raise price for its products(bed rates for example) while holding costs or that costs do not rise as much, then you will see a rise in profit margins and jump in profits.

Anyway, population in Singapore is still growing....so I think supply might be lagging demand


5% increase in non-resident population 
https://www.straitstimes.com/singapore/s...llion-mark

High price cures high price. I don't think it will be a 20% multi-year compounding but yes, maybe a good 1-2 year structural change of which Centurion is a strong beneficiary. The demand for migrant workers is largely due to clearing of pandemic backlog especially in the public construction sector (BTO, LTA road works, underground piping).

Hi Behappyalways,

Contrast to whether to buy/sell (perpetually) undervalued assets, burning our brains on profit taking fair/overvalued assets is a much more "good problem to have".

I am quite sure you probably know the leading indicators that the professionals are using to maximize profits from the uptrend. Please do generously share with VBs when you are done with it too.

Just an afterthought with regards to my own experience on THG - which went to the moon (2x itself within 1.5years from end 2020) and back. On hindsight ~1year after its share price topped out, I noticed the share price top roughly coincide with the subdial index (a price aggregate of select pre-owned luxury timepieces).

P.S. Most folks like to parrot "time in the market is more important than timing the market". A part of me agrees with it. The other part recognizes it as dogma.

Hi Weijian,

We can agree to disagree but i feel that your posting is quite impolite.

(28-10-2024, 05:23 PM)weijian Wrote: Hi Behappyalways,

Contrast to whether to buy/sell (perpetually) undervalued assets, burning our brains on profit taking fair/overvalued assets is a much more "good problem to have".

I am quite sure you probably know the leading indicators that the professionals are using to maximize profits from the uptrend. Please do generously share with VBs when you are done with it too.

Just an afterthought with regards to my own experience on THG - which went to the moon (2x itself within 1.5years from end 2020) and back. On hindsight ~1year after its share price topped out, I noticed the share price top roughly coincide with the subdial index (a price aggregate of select pre-owned luxury timepieces).
P.S. Most folks like to parrot "time in the market is more important than timing the market". A part of me agrees with it. The other part recognizes it as dogma.

(28-10-2024, 07:49 PM)Behappyalways Wrote: Hi Weijian,

We can agree to disagree but i feel that your posting is quite impolite.

hi Behappyalways,

To be honest, I can't figure out where I was "impolite". I can clarify that it isn't my intent to be so, and unreservedly apologize if you had felt so.