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Centurion Corp. Ltd. 1Q 2020 Business Updates.

Saturday, May 16, 2020

I took some time off from Neverwinter which is doing some maintenance to look at Centurion's latest updates and decided to do a bit of talking to myself in the process.

Centurion is, of course, one of my largest investments.

It was only a few months ago in November 2019 that I published the following blog:

Centurion Corporation is still cheap and a strong BUY.

That was when Centurion caught the attention of analysts at DBS and they had a target price of 52 cents a share.

Of course, things have changed dramatically since then.

I will not talk about how most of our COVID-19 cases are foreign workers living in dormitories or how students in hostels are given the option to terminate their rental agreements early without penalty to go back home.

That is old news by now.

I am more interested in Centurion's ability to survive the crisis given the challenges and its future.

I invested in Centurion because it was trading at a big discount to NAV and I believed it was a good income generator.

Of course, as an investor for income, I like that it paid a good dividend.






Today, Centurion is still trading at a big discount to NAV but, realistically, that discount could lessen if their assets are revalued lower.

The ability of assets to generate income will affect their valuations.

The government has mandated that companies must pay the dormitories operators promptly even if their employees have been moved out of the dormitories for COVID-19 treatment.

However, will occupancy suffer a reduction like it has for the student hostels in the future?

This would depend largely on how progress in the fight against COVID-19 unfolds.

It would depend on how badly the crisis has damaged the economy and, maybe, continue to damage the economy for some time to come.

So, to be realistic, we have to expect Centurion's income to take a hit at some point and, together with higher costs, earnings to reduce.

Investors should expect a cut or a suspension of dividend payment which is, of course, bad news for income investors like me.







Some of us are familiar with the saying that Centurion is like an S-REIT.

They collect rent and distribute some of that rental income to shareholders like REITs do for their unitholders.

Centurion's gearing ratio is 50% which is relatively high compared to S-REITs but I have said before like in the instance of IREIT Global that a REIT's interest cover ratio is a better measure of risk than gearing ratio.

If we borrow little but are unable to repay, it is worse than if we borrow a lot but have no issue repaying.

Centurion's interest cover ratio is 3.4x which is higher than some S-REITs today.

In an environment where interest rates stay low for longer, Centurion could possibly refinance at lower interest rates and that would improve interest cover ratio, all else being equal.

A suspension of dividend payment might not be a bad idea if some of the money goes to reducing debt.

If this should happen, I hope that Centurion remembers to reward shareholders better when the good times return.

Short term pain for long term gain.

With a good track record and relatively large stakes in the business, I believe that there is little fear that insiders would do anything to damage minority shareholders' confidence or interests.






In fact, constant insider buying is one reason why I like Centurion as an investment.

The insiders eat their own pudding.

The last time an insider bought more was last month in early April when Mr. Han Seng Juan bought 107,800 shares at about 37 cents per share.

However, it is interesting also to note that there has been no insider buying since then.

In a business where insiders have consistently increased their stakes, it is probably a good idea to monitor their moves closely to help us decide when to buy more.

We might believe something:

"We believe the PBWA and PBSA sectors will recover fairly quickly once market normalises and we will continue with our course of expansion plans into these sectors."

However, we should not throw caution to the winds:

"Wait till the situations across our markets normalise from Covid-19 pandemic and reevaluate our expansion plans then accordingly to the market situations."

Centurion's management and insiders are staying grounded and so should we.

Stay cautious and stay safe.

We are #SGUnited.








Related post:
Largest investments updated 4Q 2019.

Recently published:
1. Buffett thinks it will get worse.

2. AA REIT FY 2020 results.

Reference:
Centurion's presentation slides.

14 comments:

keng said...

Hi AK, with this Covid 19 situation, PBWA will surely undergo some changes in terms of redesigning and renovating existing facilities. I would expect costs to be borne by operators and the gov. Also with higher costs come higher rents. If the economy return to some form of normalcy and there is still demand for foreign workers, PBWA will likely be the choice of accommodation for companies and this should be good news to Centurion.

Hope OU8 can consider doing drip instead of outright dividend cut.

csky said...

Unfortunately, Centurion has been in quite a bit of the bad press due to the covid situation. Even though the condition of their dormitories are typically better than the rest. Seems like the risk is what kind of extra requirements and measures the govt will put in to the dormitory operators. Rumors has it that when construction is allowed to resume, employers might have to bear the costs for each worker to be tested every couple of weeks. Each test costs $100-$200.

AK71 said...

Hi keng,

When I watched the news and saw the S11 dormitory for foreign workers, I was appalled.

It looked a like a high rise shanty town.

Centurion's dormitories are so much better in comparison.

The COVID-19 crisis might actually be a positive for Centurion in a way.

As for dividends, crossing fingers.

AK71 said...

Hi csky,

I agree that Centurion's dormitories look much better and also look to be better run.

They are also very transparent in their communications.

Bad press might not be a bad thing for bargain hunters.

I will probably add to my investment in Centurion if I see the insiders buying again.

csky said...

Wow interesting! Now I know why you always make money and I don't. hmmm... :P

AK71 said...

Hi csky,

Oh, I don't always make money.

I have lost a fair bit of money too.

As long as we make much more money than we lose, we should do OK. ;)

laurence said...

Quote.
Wow interesting! Now I know why you always make money and I don't. hmmm... :P
Unquote.

Unlike most of us, AK is a property tycoon.
Tycoons always make money even when lesser mortals don't.
;)

AK71 said...

Hi Laurence,

I don't know where you got the idea from.

I live in a tiny one bedroom apartment and this property is all that I have to my name.

SgFire said...

Hi Ak

From the press updates, it doesnt sound centurion is going to suspend dividend or cut dividend. They are just being pessimistic.

Share price holding superbly well during the crash.

I am quite happy with that.

AK71 said...

Hi SgFire,

Centurion has very business savvy substantial shareholders.

With their interests in Centurion aligned with minority shareholders', I believe they will do what is best for the business. :)

laurence said...

Quote.
I don't know where you got the idea from.
I live in a tiny one bedroom apartment and this property is all that I have to my name.
Unquote.

With all your shares in Reits/Trusts and Property-related counters, you're a property tycoon in all measures except in name.
;)

AK71 said...

Hi Laurence,

Ah, I see what you mean.

Unfortunately, what I have only qualifies me as a "wealthy peasant."

I am nowhere close to being a property tycoon. ;)

Reference:
Three attributes of a wealthy peasant.

keng said...

Hi AK,

What do you think of these news?

I am cautiously optimistic that Centurion can have some part to play in the building and operating of these dorms. Hope the dorms under Centurion are declared clear of COVID soon.


https://www.businesstimes.com.sg/government-economy/govt-to-build-11-dorms-in-next-2-years-for-100000-workers-temporary-spaces-for

https://www.straitstimes.com/singapore/employers-have-to-let-their-foreign-workers-move-to-different-dorms-and-work-for-other

https://www.mom.gov.sg/covid-19/cleared-dormitories

AK71 said...

Hi keng,

Although the news tarred all the foreign workers dormitories here with the same brush, I believe that the authorities can see that Centurion's dormitories are a cut above the rest.

Centurion's insiders are a savvy lot and when they start buying again, that is a green light. :)

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