Westlite Toh Guan (Source: Centurion Corp)

Overview
Centurion derives about 2/3 of its revenue from purpose-built worker accommodation (PBWA) in Singapore and Malaysia with the remaining coming from student accommodation (PBSA) in 5 countries. With lower frills, the PBWA can achieve a higher profit margin than PBSA and contributes about 77% to the group total segment profit as of FY18. According to a Euromonitor report a few years back, Centurion holds the largest market share in Singapore PBWA with >10% of industry revenue and bed capacity. Bed rents are paid by employers and contracts tend to be 12 months with 1-2 months of security deposits.

Centurion's global portfolio of PBWA/PBSA (Source: Centurion Corp)

Impact from Covid-19
With foreign worker dormitories being one of the larger clusters in Singapore, there has been a significant increase in media attention regarding the living conditions of foreign workers in Singapore. To this end I think once this crisis passes, the Foreign Employee Dormitory Act (FEDA), which regulates standards for foreign worker housing, will be reviewed and have its standards raised. This would be positive for Centurion as it could eliminate other sources of accommodation like factory-converted dormitories and lower quality PBWAs. Within the industry, Centurion dormitories have been known to have one of the higher standards of living conditions.

In the short-term, I do not foresee many employers defaulting on their payments for worker accommodation as this tends to be a small proportion of their costs. Having workers shift out of dormitories to alternative sites like army camps also do not release employers from their obligations to Centurion. To date, Centurion has not announced any rental rebates for tenants.

On 2 Apr 2020, Centurion also announced a delay in its redevelopment of Westlite Toh Guan which was slated for April 2020; the delay will be until the Covid-19 situation in Singapore normalizes according to its CEO. I think this is a slight positive as the funds set aside for the asset enhancement capex can now be an additional buffer if cashflow is constrained during this period.

On the PBSA side, rents could be negatively impacted as foreign students return home and vacate their premises. There could also be pressure to provide rental refunds for those students to keep up its reputation as a fair student accommodation provider. In the mid-term (once the virus passes), there could be an uptick in demand for PBSA especially if a global recession ensues. Historically, university enrollment rates see a rise when the economy is in a downturn as the opportunity cost of not working is reduced due to weaker employment prospects in the job market.

Centurion's PBSA properties in Australia (Source: Centurion Corp)

Overall, I think Centurion has a good long term future due to its dominant position in PBWA in Singapore and Malaysia and its foray into an increasingly popular student accommodation asset class. I think the cash generative (positive operating cash flow) and high gross profit margin (~70%) nature of the business gives it a buffer to cushion against any of the abovementioned short-term negatives.  However, investors should expect to bear with near-term volatility due to the impact of Covid-19.