Singapore Stock Picks: Centurion Corp: SGD0.62 BUY (TP: SGD0.82)

More Sterling Growth Ahead

CENT’s 4Q13 core PATMI of SGD5.6m (+26.3% y-o-y), made on the back of SGD17.6m in revenue (+1% y-o-y), was in line. Its outlook remains positive, as total beds are expected to increase 60% to 54k which leads to a 32% core earnings CAGR in FY13-16. Expect further upside from new acquisitions of student accommodations in the UK and Australia. Maintain BUY, with a DCF-based TP of SGD0.82.

Drastic shortage of supply leads to 43% growth in accommodation business. Within Singapore’s workers accommodation business, an additional 50k-60k beds are expected to be delivered by the end of this year. This will increase the total supply of dormitory beds to 200k-210k, which falls well short of the demand created by the 500k work permit holders in Singapore. The evident shortage of supply will continue to put upward pressure on rental rates and occupancy levels coupled with CENT’s rapid expansion plans, we can expect the company to see strong growth from FY13 to FY16.

Gross and net margins continue to improve. All in all, we expect CENT’s gross and net margins to continue to improve. It grew 4% and 5% to 52% and 28% respectively in FY13 due to the: i) increase in contributions from its accommodation business, and ii) a 30% decrease in contribution from the optical business. We expect optical disc’s contribution to continue declining at a 30% rate annually, and the unit to cease operations by the end of 2015 -  which would improve its margins as the optical business has been a drag on their earnings and margins.

Dividend increases 50% y-o-y to SGD0.006. Due to the company’s strong performance in FY13, management has declared a dividend of SGD0.006, up 50% from FY12. However, its dividend payout will remain low as the company is on an aggressive expansion plan.

Diversifying further into student accommodation business. After the acquisition of RMIT village, we expect management to further diversify into the student accommodation business by making acquisitions focused in Australia and London. For this segment, 2014 will be an exciting year of expansion

Source: RHB Research

Singapore Stock Picks: Kingsmen Creatives: SGD0.95 BUY (TP: SGD1.10)

KMEN’s 4Q13 PATAMI rose 23.1% y-o-y to SGD7.6m on the back of a 8.2% y-o-y revenue growth, as it completed some projects during the quarter. The company’s outlook remains healthy, supported by the pipeline of MICE events and theme park launches across the region - although growth may be limited by its ability to take on more projects. Maintain BUY with a SGD1.10 TP, based on a 8x FY13F P/E (ex-cash).

Expect a better year ahead. Kingsmen Creatives (KMEN) has a healthy current orderbook of SGD138m (vs SGD81m a year ago), of which SGD117m is expected to be recognised in FY14. KMEN typically continually secures interior fit-out contracts throughout the year. That, coupled with the planned developments in the region (ie new malls and theme parks), indicates revenue and PATAMI are likely to continue to grow. On top of that, KMEN’s strong balance sheet (net cash of SGD59.2m as of end-FY13) puts it in a good position to bid for upcoming projects.

Regional developments a boon for KMEN. The pipeline of theme parks and shopping malls across Asia would be beneficial for KMEN. Closer to home, the Government’s plans for Changi Airport’s Project Jewel (a new mixed-use complex) is likely to benefit KMEN. International luxury brands are still expanding into Asia and into new markets, eg travel retail (in order to establish a retail presence in airports). As airports are being refurbished and new terminals built, such developments would provide more opportunities for the company. Other developments that could be positive for the company include the pickup of meetings, incentives, conferences and exhibitions (MICE) events as well as the pipeline of theme park launches in Asia.

Opportunities to enhance portfolio. There are several exciting theme parks expected to be launched over the next few years, which would benefit KMEN. Given the size of its operations, KMEN successfully securing some parcels of work in each theme park project – which is likely, given its track record - would enhance its portfolio. As such, we remain positive on its outlook for growth. Maintain BUY with a TP of SGD1.10.

  Source: RHB Research

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