Excerpts from SooChow CSSD Capital Markets report

Analyst: Tan Cheng Wee, CAIA

Boosted by maiden acquisition

EC World REIT

Unit price: 
71 c

Target: 
88 c

EC World REIT (ECW) reported its 2Q18 results within expectations. 2Q18 revenue +7.6% YoY and NPI +8.2% YoY, driven by contribution from maiden acquisition Wuhan Meiluote.

There is potential for ECW to bridge the gap with its positioning by increasing e-commerce asset exposure from
i) ROFR assets under Sponsor (Fuzhou e-commerce asset is acquisition ready)
ii) YCH partnership
iii) 3rd party acquisitions.

Maintain BUY with TP $0.88/unit.

 

mgt gab event6.18b(L-R): Johnny Tng, CFO | Goh Toh Sim, CEO | Li Jinbo, Head of Investments, Asset Management and Investor RelationsPhoto: GCP Global2Q18 results within expectations: 2Q18 gross revenue +7.6% YoY to S$24.9m, NPI +8.2% YoY to S$22.8m, mainly driven by contributions from ECW’s first acquisition Wuhan Meiluote.

Distribution income of S$12.4m (99.3% payout) +3.1% YoY; DPU of S$1.57c +1.9% YoY; +6.9% QoQ as 1Q18 results incurred withholding tax expenses from cash repatriation.

Portfolio occupancy is firm at 96.7% (committed occupancy: 99.2%) as of 2Q18. Gearing stands at 29.5%, leaving ample debt headroom for acquisitions.

♦ Wuhan Meiluote occupancy upside materialized: While we believe there may have been market concerns on tight acquisition yield of Wuhan Meiluote at 4.9%, we have previously highlighted upside to the asset post stabilization.

Existing tenant JD.com expanded within by taking up c.2,900 sqm more space, bringing occupancy up to 88.2% from 82.2% at acquisition and illustrating strong tenant covenants.

♦ Reiterate potential of visible acquisition roadmap: We maintain that ECW possess the potential of bridging the gap to its e-commerce REIT positioning with a visible acquisition roadmap.

In the near term, Fu Zhou e-commerce ROFR asset has commenced operations and primed for acquisition; in the longer term, partnership with YCH could bring potential pipeline assets for acquisition consideration.

♦ Maintain BUY: We maintain BUY rating and a TP of S$0.88/unit on ECW, in view of yield compression potential as investors gradually digest the inorganic growth trajectory and rising exposure to logistics e-commerce sector.

ECW REIT offers attractive FY19E yield of 9.14% and currently trades at undemanding 0.79x P/B.


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