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Centurion Corp Ltd Is Near Its 52-Week Low – Is There a Bargain Here?

Centurion Corp Ltd (SGX: OU8), a storage disc manufacturer turned dormitory operator, has seen its shares take a big fall lately. In fact, it has tumbled by 25.7% in just three months starting from 9 July 2014.

It is trading at S$0.52 per share as of yesterday’s close, just a tad higher than its 52-week low of S$0.51. This also marks a fall of almost 34% from its record high of S$0.795 reached back in April this year, as worries over overcapacity in dormitories in Singapore (a key market for the company) dragged investor sentiment down.

Can things get any worse for Centurion as they continue to face competition from other parties scurrying to grab a slice of the lucrative accommodation services pie?

First-mover advantage no more?

After a RTO (reverse take-over) in 2011, Centurion became the only leading dormitory operator in Singapore which focused on worker and student accommodations. Centurion’s move into workers’ dormitories before almost anyone else did so seemed to be right on the mark. The company managed to capitalize on Singapore’s previous undersupply of quality worker dormitories due to the boom in construction activities, which required a large supply of foreign workers.

As a result, Centurion had experienced tremendous growth over the past few years: The company’s bottom-line had spiked from a loss of S$6.2 million in 2011 to a profit of S$92.2 million in 2013. Investors who were upbeat about the positive news sent Centurion’s shares soaring by almost 400% from S$0.16 at the start of 2012 to its all-time high of S$0.795 this April.

However, this is where the good times seem to end. Centurion is likely to face headwinds in the future because of two main reasons. Firstly, with more new entrants in the workers’ dormitories space, such as TTJ Holdings Ltd (SGX: K1Q), itching for a piece of the action, the supply of bed space will increase considerably in the near future. Secondly, the change in government policy to curb the number of foreign workers in Singapore may also affect demand for dormitory space.

These two factors have likely weighed down on Centurion’s shares and contributed to its recent downward spiral.

Looking ahead

Despite the near-term headwinds, Centurion is still pressing ahead with its focus on the dormitory business in Singapore. That’s because management is still positive on the overall development of its business with the support of Singapore’s government as the latter has been pushing for more conducive living quarters for foreign workers in the country. In Centurion’s latest second quarter earnings, management also commented that “rental rates are expected to remain sustainable with strong occupancy rates.”

That said, the company’s also diversifying away from Singapore, and away from the workers’ dormitory business.

For instance, Centurion is building two new dormitories in Malaysia which would be located in Tampoi and Senai. Malaysia also has a heavy reliance on a foreign workforce, and that has spurred Centurion to increase bed capacity in the country too. Indonesia is a new market for Centurion given the company’s purchase of a plot of land in the country in late 2013 for the potential development of workers’ dormitories.

As for its moves away from the workers’ dormitories business, Centurion has made moves into the student accommodation business. For instance, the company had acquired the RMIT Village in Melbourne, Australia late last year and followed up with a July purchase of four student accommodation-related assets in the UK. These acquisitions had cost the company A$60 million and £77 million respectively.

Foolish Bottom Line

Although near-term headwinds may arise from the increase in bed supply in Singapore, Centurion’s making moves to cushion the impact.

Time will tell if that’s enough, though Lian Beng Group Ltd (SGX: L03) seems to be rather positive on Centurion’s prospects given the former’s strategic investment in the latter back in March this year.

What do you think about Centurion’s situation? Let me know through the comments section below!

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