Maybank initiates coverage on Centurion with ‘buy’ call with construction boom in Singapore expected.

Poised to Gain from Construction Boom, Tighter Supply

Maybank has initiated coverage of Centurion with a "buy" call, citing optimism over the tighter supply of worker dormitory beds in Singapore and strong construction demand. The analysts, Jarick Seet and Eric Ong, have set a price target of S$1.45 – 19.8 per cent or S$0.24 above its latest closing price of S$1.21 on Apr 1.

Favourable Demand-Supply Dynamics

The purpose-built accommodation operator is poised to benefit from "favourable demand-supply dynamics" in the Republic. This comes as Centurion has posted a net profit of S$226.6 million for its second half ended Dec 31, nearly doubling its earnings from S$114.8 million for the same period a year ago.

Construction Boom and Tighter Supply

Ong and Seet noted that the Building and Construction Authority forecasts up to S$53 billion worth of construction contracts in 2025, with construction demand sustaining at around S$39 billion to S$46 billion between 2026 and 2029. Demand for worker dormitories is set to remain strong as more foreign workers are expected to be brought in to support Singapore’s increasing infrastructure projects, factory production, and other labour-intensive requirements.

Growing Student Accommodation Portfolio

The group is also expanding its student accommodation portfolio in Australia and the UK, with student accommodation presenting a "unique alternative asset" that has drawn "strong interest" from institutional investors. The analysts noted that the outlook for the student accommodation sector is positive for these markets, as reflected in the group having notched higher financial occupancy rates in the 2024 financial year compared with FY2023 in both places.

Capital-Recycling Initiatives

The analysts also highlighted Centurion’s consideration of spinning-off some of its accommodation assets into a real estate investment trust, which could potentially issue a dividend in specie of some units in the proposed trust to reward shareholders. Such capital-recycling initiatives could drive a stock rerating as well.

Conclusion

In conclusion, Maybank’s initiation of coverage of Centurion with a "buy" call suggests that the group is poised to benefit from favourable demand-supply dynamics in the Republic. With a strong construction boom and tighter supply of worker dormitory beds, Centurion’s management is projecting a further supply squeeze by 2027, as existing worker dormitories will need to be refurbished to meet standards under the Ministry of Manpower’s Dormitory Transition Scheme.

Frequently Asked Questions

Q: What is the price target set by Maybank analysts for Centurion?

A: The price target is S$1.45 – 19.8 per cent or S$0.24 above its latest closing price of S$1.21 on Apr 1.

Q: What is the outlook for the student accommodation sector in Australia and the UK?

A: The outlook is positive, with higher financial occupancy rates in the 2024 financial year compared with FY2023 in both places.

Q: What are the capital-recycling initiatives being considered by Centurion?

A: The group is considering spinning-off some of its accommodation assets into a real estate investment trust, which could potentially issue a dividend in specie of some units in the proposed trust to reward shareholders.