EC World REIT: Current trading yield 8.4%

Excerpts from DBS report

Analyst: Derek Tan

E-commerce catching the flu?

Maintain BUY with revised TP of S$0.80

We maintain our BUY call but revised our TP to S$0.80.

EC World REIT
Unit price: 71 c	Target: 80 c

We like EC World REIT (“ECW”) for its portfolio of e-commerce logistics and port logistics properties that are mostly on master leases (more than 70% of all leases) with regular rental escalations, and this provides income visibility and stability.

However, persistent weakness in the RMB and the withholding taxes levied on income to be repatriated has been limiting ECW from achieving its full potential.

Dividend rise

“We project FY20 DPU to increase by c.3.5% due mainly to additional income from Fuzhou E-Commerce and in-built rental escalations at master-lease properties.”

-- Derek Tan,
Analyst, DBS

The ongoing COVID-19 outbreak has affected operations is at least one of its properties and is something that we will be monitoring closely.

It remains to be seen what further knock-on effects the pandemic will lead to.

Where we differ: On the back of the Fuzhou E-Commerce acquisition that was fully funded by borrowings and cash, we see this as a positive for ECW in FY20 with its full-year contribution.

ECworld mgt3.18 (L-R): EC World REIT Chairman Zhang Guobiao with CEO Goh Toh Sim. (Mr Zhang is also chairman of the REIT's sponsor, Forchn Holdings Group).
NextInsight file photo.With gearing at 39% and current trading yield of 8.4%, the next acquisition will be crucial given the need for equity fund-raising.

Scaling the e-commerce ladder. ECW completed the acquisition of the Fuzhou E-Commerce property in August 2019. The 5- year master lease on the asset has built-in rental escalations of 2.25% annually.

The property is expected to contribute full-year income of c.S$13.5m and account for approximately c.12% of FY20 gross revenues.

With the addition of Fuzhou E-Commerce and the 1.5% increase in valuation for the rest of the assets, ECW currently has a portfolio of S$1.6bn worth of properties in the e-commerce logistics sector.

Derek Tan, analystValuation: We maintain our BUY call with a revised DCF-based TP of S$0.80.

Key Risks to Our View: Key risks include sponsor-related risks such as failure to extend master-lease agreements and challenges in underlying occupancy.

Full report here.

RHB report is here.

Phillip Securities report is here.

EC World REIT: Current trading yield 8.4%

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