UOB Kay Hian analyst: Loke Chunying
Weighing The Risks And Rewards
• Increased crackdown on unauthorised dormitories…From Dec 14-Mar 15, the Singapore Civil Defence Force cracked down on 68 unauthorised dormitories that either failed to meet fire safety standards or were illegal. This came on the back of two fire accidents at Geylang in Dec 14 and Apr 15 that killed six foreign workers.
• …and freeze on temporary dorms in 12 estates… To recall, URA issued a circular in Nov 14, stating that it will no longer allow new temporary dormitories to be built in 12 industrial estates, due to the “significant strain on existing infrastructure”.
• …May see increased demand for purpose-built dormitories. Based on land tenders, about 100,000 new dormitory beds are expected to enter the local market from 2H14 to 2016. However, we believe the severe crackdown on unauthorised dormitories and freezing of temporary factory-converted dormitories will help boost demand for purpose-built accommodation and absorb part of the incoming supply.
• Tuas: The baby of uncertainty. While the lease of Westlite Tuas is expected to expire in 2017, we believe it will be extended for at least 5-6 years as the construction of the Tuas mega port is underway. Being the current owner/operator of the dormitory, we believe Centurion will be the strongest contender should the dormitory be retendered. However profit contribution from Westlite Tuas will likely to be affected from 2017 regardless, as current renewal rates (from authorities such as BCA and JTC) are unlikely to be as attractive as they were nine years ago.
• We raise our net profit forecast for 2015 and 2016 by 6-8% as we had previously factored in more conservative rental rates and margins for the local dormitories. Dormitories at Toh Guan and Mandai continue to operate at near full occupancy with rental rates having been sustained at S$280-300/bed per month. Occupancy rates at Tuas are also in excess of 90%, although rental rates have softened slightly.
Full report here.Excerpts from analyst's report