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Centurion Corporation Limited (SGX: OU8)
For a quick background, Centurion Corp Ltd (SGX: OU8) owns and operates workers and student accommodation assets, as well as a storage disc manufacturing business. Its workers accommodation assets are managed under the Westlite brand while its student accommodation assets are managed under the dwell brand.
As at 9 September 2018, the Group owns and manages a portfolio of 27 operational accommodation assets totalling around 55,148 beds. With projects currently under development and undergoing asset enhancement works, the Group’s portfolio is expected to increase to 68,414 beds by FY2020.
Next up, we delve deeper into the company based on the insights garnered from the company visit and the panel Q&A discussion.
Strong Demand Vs Supply Dynamics
There are 2 segments for Centurion Corp – Workers’ Accommodation and Students’ Accommodation.
Under the Workers’ accommodation, Centurion’s customer base is diversified across industries and hence, demand is expected to stabilize with the recovery of the oil and gas industry alongside the possible reduction in the construction industry.
Amid the growing awareness of need for improved welfare for foreign worker populations, Singapore and Malaysia’s governments both encourage proper housing for foreign workers.
It is especially the case in Malaysia where government is supporting the hiring of foreign workers to ease labour shortage. In fact, there is a large foreign workers’ population in Malaysia:
- c. 1.72 million foreign workers in Malaysia with valid work permits
- c. 1.7 million illegal foreign workers
- c. 649,000 foreign workers in the manufacturing sector
Next up, we move towards the Students’ accommodation. In general, there is pent-up demand for Purpose Built Students’ Accommodation (PBSA) in mature markets like Australia, UK and US. These are the countries with well-known universities where parents would want to send them to study there.
Compared to U.K., the provision rate (beds to full-time students) stands at 6% in Australia and 12% in US. In my opinion, it means that there is probably still much more room for growth.
We can also see many big players moving towards this asset class. One recent example is Singapore Press Holdings – they acquired a portfolio of student accommodation in the U.K. for £180.5 million (about $233 million).
It comprises of 14 building (around 3,436 beds) and are located in established university towns and cities with large full-time student populations such as London, Birmingham and Sheffield.
Steady Growth in Top and Bottom-line
There is a saying that ‘Fortune favors the bold’ and this is especially so for Centurion.
The decisive move to shift towards the accommodation business in year 2011 has turned around the business and placed it on a good position to continue growing for the long run.
Excluding its legacy optical disk business, the accommodation business’s revenue and profits have grown by leaps and bounds – surging 48% and 43% annually for the past 7 years.
This is not an easy achievement, and we can take heart that the growth uptrend is still intact with more bed capacity coming up until FY2020.
Vibrant Living Environment for Workers’ Accommodation
This aspect definitely deserved a mention as we were pleasantly surprised by the workers’ accommodation.
In my opinion, their facilities are even bigger than that of condo hands down!
They even have a full-fledged gym for foreign workers!
A tour of the common games room!
A glimpse of where and how foreign workers do their hands-on training.
One thing I feel sets Centurion apart from other dormitories’ operators is their partnerships with industry and community organizations such as ASPRI – a not-for-profit trade association.
The workers staying nearby is able to hone or upgrade their skillset at Aspri’s training centre for a subsidized rate (up to 90% subsidy by industry associations). According to ASPRI’s executive director, Wayne Yap, the courses are always fully booked due to sky-high demand.
In fact, CEO Mr Kong said Centurion’s model of PBWA is well received in Penang, and the company is optimistic about its asset due to open in Bukit Minyak.
The points below were raised during the panel and Q&A session (answers edited to my best knowledge).
Sales outlook going forward
Question: The 2nd quarter results 2Q2018 shows that the lease expiry on Westlite Tuas caused a year-on-year drop in revenue and profits. Excluding that, total revenue saw a small increment of 2%.
Where do you see sales and profits trending in the next 12 to 24 months?
Answer by CEO Mr. Kong: The lease expiry was actually a bonus because the government extended the expiry for 9 months. This is one of the reasons why the company issued a special dividend of 0.5 cents dividend for FY2017.
Going forward, there will be an increase in portfolio capacity to generate additional sales and profits.
Comments on Competition
Question: Kindly name some of your competitors. How do you differentiate from your competitors and where do you stand among them?
Answer by CEO Mr. Kong: We will not touch on how our competitors are doing as it is inappropriate for us to comment on how our competitors are doing.
On the other hand, judging from the relatively Centurion’s higher occupancy rates in the industry, we must be doing something right here.
Details of the Student Housing Fund
Question: Other than the addition of 7,000 beds and undergoing Asset Enhancement Initiatives (AEI), one crucial growth direction is the implementation of asset light strategy such as the setting up of a student housing fund of US$89.5 million.
We understand that this venture will generate recurring income for the company. Kindly share more details on it.
Answer by CIO Mr. Ho: Yes, this is our first step in building up our services to include investment and property management. Previously, we are unable to capitalize on the strong demand of student housing due to our limited capital. There is only so much we can leverage up to if we go in alone.
Partnering with other interested parties like High Net-Worth individuals, funds and family offices effectively remove that bottleneck and allow us to continue our fast-paced expansion.
In addition, we will be able to charge a certain % of the value of asset under management as fund management fee and % of rental revenue as property management fee.
Promotion of their student accommodation in China
Question: What marketing channels do Centurion employ to promote their student accommodation in China (the world’s biggest international student source market)?
Answer by CEO Mr. Kong: We have close collaboration with a number of leading international student agencies in China and the agents will refer Centurion’s PBSA to the students studying abroad. In addition, Centurion also have local employees over there to do the marketing and even an official WeChat account for customer support.
Are you selling your legacy Optical Disk Business?
Question: Will the legacy optical disk business be sold away or shut down?
Answer by CEO Mr. Kong: We have already streamlined our optical disk business until the last one standing in Singapore.
Currently, the business is still cashflow-generative as there are still demands for CD-drives. We will continue to monitor and shut down the business if its making losses in future, but for now, we will make it running since its profitable.
Is there Rental Escalation built in the contract?
Question: Is there any rental step-up clause for both the PBWA and PBSA?
Answer by CEO Mr. Kong: For the PBWA, we typically lock in the rates for 1 year and subsequently renegotiate the contracts after that.
For the PBSA, there is usually an annual 3% step-up rental escalation.
With that, we come to a close for our 1st ever company visit. We want to say thanks to the whole Centurion committee for this welcoming arrangement.
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