Another two weeks have flown by and I have once again not been consistent in my posting. Time really has to slow down a little for me to find enough of it to do more research. Markets are still resilient even though the pace of its rise has been slowing down. Earnings have been pretty bad for the large caps but the market continues to be strong. The picks I have given have done pretty well in terms of earnings so far. Silverlake, LMA, Sarin, Dukang etc have all produced results that have been stronger than expected in spite of the poor economic conditions. I continue to like these stocks and recommend you guys to accumulate them.
This week, I want to write about a company which has been pretty much on my mind. I believe that it will deliver good earnings over time. This is a company that just came out of a Reverse Takeover and it is still in its teething stage. Profits have not come in at this point as it is still in the midst of shedding their loss making business.
Centurion Corporation Limited, formerly known as SM Summit Holdings Limited, owns and operates dormitory assets, as well as a storage disc manufacturing business. The Group’s dormitory assets currently include Centurion Dormitory (Westlite) Pte. Ltd. the owner-operator of Westlite Dormitory located at 18 Toh Guan Road East and 45% of the issued share capital of Lian Beng-Centurion (Mandai) Pte. Ltd. which owns a piece of freehold industrial land in Mandai, of approximately 18,700 square metres which will be developed into dormitories on part of the land. In addition, it is also involved in the business of manufacturing compact discs, digital versatile discs and data storage.
With various expansion plans in place, Centurion looks to gain a strong foothold in the growing workers accommodation industry in the region. In line with its growth strategies, the company is actively seeking to enhance its current assets in the midst of its development and acquisition of new projects, aiming to be one of Asia’s leading providers of quality workers accommodation and professional dormitory management services.
Lian Beng-Centurion (Mandai) Pte Ltd, 45% held by Centurion and 55% by Lian Beng Group, intends to launch the sale of 141 units of its ramp-up industrial building to be developed on the freehold Mandai Land1 in the fourth quarter of 2011. The Mandai Land has been divided into three plots for separate developments as below:
- The first plot will be developed as a workers dormitory with a capacity of approximately 4,700 beds.
- The second plot will be developed into a ten-storey ramp-up multiple-user general industrial building with a total of 141 units and a canteen.
- The third plot may be developed as workers dormitory or industrial spaces.
Construction of the ramp-up industrial building on the second plot of Mandai Land is expected to commence in Q4 2011 and likely to be completed within 15 to 18 months. The average selling price per square foot for the units is expected to range between S$650 and S$700.
Centurion is embarking on the acquisition for a Tuas dormitory as part of the Group’s acquisition growth strategy to be a dominant player in providing dormitory accommodation and services to foreign workers. The acquisition will add 8,600 beds to the Group’s portfolio, which will immediately raise the profile of the Group as a dominant independent dormitory operator, enable the Group to enjoy economies of scale in its operations and provide the Group with the necessary infrastructure and platform with which to widen its customer base. As the Tuas Asset is an operating dormitory, the Proposed Acquisition will bolster the company’s revenue from this financial year.
This acquisition can be used to leverage on the customer base it will gain as a result of the acquisition. The Tuas Asset is presently utilized by an existing set of customers, which the Group will absorb upon completion. It will be able to tap its enlarged customer base to promote and fill up its other dormitories when development and upgrading works at such dormitories are completed and become operational in the Company’s financial year ended 31 December 2013 or 31 December 2014. Increasing the number of its existing customers will facilitate the Group’s future marketing efforts and possibly improve the rate at which the Group is able to fill up upcoming vacancies at its dormitories.
Centurion has also been active in Malaysia with two acquisitions over the past two months and it has also identified 6 dormitory projects in Malaysia as potential acquisition targets. All six projects are located within or in proximity to key industrial and manufacturing hubs in Johor, Southern Malaysia and comprise completed dormitories, projects under construction, vacant land and factories for conversion to dormitories. The two successful acquisitions will add approximately 9,000 beds to the Group’s Malaysia dormitory portfolio. These projects which consist of completed dormitories, projects under construction, vacant land and factories for conversion to dormitories, are expected to add approximately 33,400 beds to the dormitory assets portfolio of the Group. In addition, Centurion is also actively pursuing opportunities in China to acquire or build dormitory projects either independently or in partnership with third parties.
I understand that this is still a work in progress company but in my view, it has every chance of becoming a major player in a very niche business. There is a need for additional capital raising in order for them to fund their targeted acquisitions but over the longer term this is a company that has the potential to reward its shareholders handsomely. The way the company is out there looking for acquisition targets, I would not be surprised if they hived off the assets into a dormitory Reit. The yields on such a Reit will really be quite attractive from the research I have been doing on dormitories. Apparently, it is a very lucrative business with yields of above 7% from the services provided.
I like the company's exposure to Malaysia because there is going to be a lot of changes in the southern part of the country with the development of Iskandar Economic Region and many other infrastructure projects coming up. All these projects are going to need plenty of foreign workers to work on them. Housing for these workers will be in great demand and I believe that the company shares the same vision.
One possible headwind facing Centurion in Singapore could be the Government's drive to lower our dependence on foreign workers but I really doubt it will hurt the business at all. Show me Singaporeans who are willing to do the work which foreign workers have been doing for us at the same cost and I will be impressed.
Overall, I like the story behind this stock and it is not expensive at current price as the company is still very much under the radar and I guess investors are still pretty oblivious about how profitable the dormitory business can be. Technically, the company's stock price hit a new high two weeks ago after which it pulled back and I believe this is not a bad level for entry.
Ok thats all I have for this week and lets hope next week's LTRO does not disappoint the markets. Have a great week ahead!
Best,
SVI
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Well done, Sir. Considering it's current stock price.
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