Excerpts from DBS report

Analysts: Dale LAI & Derek TAN

Business as usual
Maintain BUY with a TP of S$0.80. EC World REIT (ECW) voluntarily gave half a month of rental rebates to its tenants due to disruption in operations caused by COVID-19.


Unit price: 
67.5 c

80 c

The RMB23.7m in rebates affected revenues and distributable income despite the relatively stable operating performance.

Going forward, we understand that tenant operations may be slower and demand for logistics space may be muted.

Thus, we have assumed slightly lower occupancy rates and flat rental reversions for its multi-tenanted properties.

Despite this, full-year contribution from Fuzhou E-Commerce and rental escalations for master leases would help mitigate some of the weakness in earnings.
FuZhouE CommerceAcquired on 8 Aug 2019, Fuzhou E-Commerce is an e-commerce logistics property strategically located on the western side of Mingxing Road, Fuyang District, Hangzhou. Photo: Company

Where we differ: Despite the weaker performance in 1Q20 due to the rental rebates, we expect ECW to report strong earnings for the rest of FY20.

ECWorldChair CEO3.18Goh Toh Sim, CEO of  EC World Asset Management, the REIT manager.
We have rolled forward our DCF-based valuation and thus maintain our TP of S$0.80.

Stronger-than-expected growth in the e-commerce sector will be a catalyst.

With the COVID-19 pandemic potentially slowing the growth trajectory of China’s economy, we moderated our occupancy and rental rate projections for the rest of FY20.

However, if the e-commerce sector rebounds faster and stronger than we anticipate, it would be a catalyst for our earnings projections and valuation.

Valuation: We maintain our BUY call and DCF-based TP of S$0.80.

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

Ramp up

“Since the easing of COVID-19 containment measures in March 2020, tenant operations have ramped up very quickly and are mostly back to normal. Looking ahead, ECW will continue to seek opportunities within China and Europe."

-- DBS report

We continue to like ECW for its stable portfolio metrics and long WALE that provides earnings visibility.

However, given its relatively high gearing, we believe that any acquisition will be accompanied by equity raising.

To further align their interest with stakeholders, the directors and management of ECW will voluntarily take a 10% reduction in remuneration for 2Q20.

Full report here. 

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