AS THE only listed dormitory operator in Singapore, Centurion Corp has attracted a fair bit of attention in recent months, particularly after last December's riot in Little India. Two brokerage houses, AmFraser and DMG & Partners, initiated "buy" calls in quick succession. The riot highlighted a shortage of liveable spaces for workers such as dormitories - a gap that Centurion fills, analysts noted.
Now, the company's stock is flying high at over 70 cents a share last week - more than two-and-a- half times the 27 cents it traded at a year ago. Construction group and joint-venture partner Lian Beng also bought a 5 per cent stake in the company in March.
The key draw of the stock is how it gives exposure to cashflow- generating property assets in the undersupplied segment of foreign worker dorms, where the rent per bed has been increasing 20 per cent a year and Centurion's Singapore occupancy rates are almost full.
The company is also expanding in Malaysia, venturing into Indonesia and diversifying into student accommodation in Australia and other educational hubs.
Yet there are signs of a frothy market. Tender prices for dormitory projects in Singapore are approaching levels which give developers limited room for profits.
"We will acquire more, but at the right price," CEO Kong Chee Min told The Business Times in a recent interview. "In terms of supply-and-demand dynamics, there's still a lot of growth we can capitalise on. We won't be tendering at unreasonable prices."
"Our focus will still be in workers' accommodation," Mr Kong added. "Student accommodation is something new to us, and we will take baby steps. We hope to have a balance between the two."
Need for liveable spaces
Centurion Corp was previously known as SM Summit, a maker of storage discs. In a reverse takeover deal in August 2011 by private investment group Centurion, the company acquired properties in Toh Guan East (60-year lease from 1998) and Tuas (3+3+3 lease from 2008). It began developing a new block in Toh Guan East, as well as a dorm in Mandai, where it has freehold land.
Today, Centurion has around 23,000 beds in three dorms here, with another 4,100 beds to be added at a fourth site in Woodlands under development. The increased capacity in the last two years and higher rentals charged caused Centurion's accommodation segment revenue to rise 26 per cent to $47.3 million last year, and net profit to jump 43 per cent to $19.6 million.
Contracts are signed with companies for 1-2 years at a time for their workers to stay in the dorms. Charges are around $290-300 a month per bed - not the most expensive in the market, but not too far behind. The relatively short leases "allow us to do rental adjustments if need arises", said executive director and Centurion Properties CEO Tony Bin.
"There is turnover, yes - jobs come and go. But by and large, there's a layer of tenants who stay with us for a while."
But with the government keen to reduce Singapore's reliance on foreign workers through tighter quotas and higher levies, the question may be asked whether Centurion's business model is sustainable in the long run.
Mr Kong said the market still has some time to catch up with demand. "The gap is quite wide between the supply of purpose-built accommodation here, compared to the number of foreign workers."
The 770,000 work permit holders here stay in a variety of places. Just around 160,000 workers - who work in contruction, marine and manufacturing - are estimated to stay in purpose-built dorms such as those that Centurion offers. These are essentially proper housing with facilities, such as air-conditioned television rooms, gyms, canteens, barbers and mini-marts. Another 40,000 beds have been tendered out recently.
That still leaves a gap of more than half a million workers. These stay in a mix of housing: factories converted to dorms, temporary quarters by construction sites, rented HDB flats, shipping "container blocks", shophouses, and landed homes. Rent at purpose-built dorms has increased drastically as a result of the shortage, from $95 a month in 2005 to almost $300 today.
Those who stay in temporary quarters or factories may have to get by without proper kitchens or enough toilets. This was a cause of much worker unhappiness. When 171 Chinese bus drivers in SMRT went on strike in end-2012, it was not just because of low wages, but because of poor living conditions such as bed bugs. The lack of recreational spaces for workers and the need for better amenities in dorms was also discussed after last December's Little India riot.
Thus there will be opportunity for Centurion, Mr Kong said. "There will be a push for workers to be housed in purpose-built dormitories."
Mr Bin added that even as the government reduces its reliance on foreign workers, Singapore is still dependent on manufacturing as a driver of the economy. The government is also pursuing numerous infrastructure projects over the next 20 years that will require foreign labour. They include the expansion of Changi Airport, the redevelopment of Paya Lebar Air Base, a waterfront city in Tanjong Pagar and the relocation of port facilities to Tuas.
"These will take years to complete. So we believe we are in good stead, both in the industrial sector as well as in infrastructure," he said.
The demand for worker dorms might hold up as supply catches up, but Centurion is aiming to stand out from other dormitory operators through its expertise in ensuring workers are comfortable and integrated, Mr Kong said.
Every year, Centurion sets aside $100,000 to $200,000 per dorm for social and other welfare activities. They include free medical screening for workers, festive celebrations, movie screenings, subsidising excursions to Sentosa's Underwater World and the recent Singapore Airshow, as well as another recent activity: a first aid class.
As a result of Centurion's efforts, Mr Bin is hoping that the government will move away from looking at just price as a criterion to allocate sites to developers of worker dorms. The wish comes even as Centurion finds itself being outbid by brasher players.
"They should look at professional management and the totality of services. People are tendering high. It's becoming a bit speculative. We'll bid at a price that we feel is comfortable - that's why we weren't the highest bidder in the past few tenders," he said.
Looking ahead, Centurion has 12,000 beds under development in Johor, where it has around 14,000 beds. It has bought a piece of land in Jakarta for development. Its 456-bed RMIT Village student dorm acquisition in Melbourne is expected to start contributing to earnings soon.
As for its sunset optical disc business, which contributes around 30 per cent of revenue, disposal is "one of the possibilities", Mr Kong said.
Centurion thus looks set to keep growing in the next few years. Key risks, brokers noted, come from an economic slowdown, regulatory hurdles and aggressive bidding by competitors. Yet they remain positive, with target prices of well above 80 cents a share.
Remember SMRT, whose bus drivers went on strike over wages and poor living conditions? Since the second half of last year, more than 300 SMRT bus drivers have been housed in Centurion's Mandai dorm. "No complaints so far," Mr Kong said.