Excerpts from DBS Research report

Analysts: Dale Lai & Derek Tan

A bargain despite refinancing hurdles

Investment Thesis
A unique opportunity to accumulate, S$0.70 TP. A close to 40% year-to-date (“YTD”) slide in share price owing to perceived refinancing issues has sprung up a unique opportunity.

EC World REIT

Share price: 
54 c

Target: 
70 c

We see planned balance sheet recapitalisation by end of 2022 to be positive with the proposed sale of two properties to sponsor which will potentially allow unitholders to
(i) crystalise NAV and receive a one-off dividend ranging between c.10scts – 18 scts, and
(ii) reduce reliance on master-leases to Sponsor to be overall positive.
Post-sale, we see ECREIT still delivering yields of c.8%.


Will the proposed divestment to sponsor pass the shareholder test?
ECWorldChair CEO3.18(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 the manager entering into an MOU with the sponsor for the sale of two assets totalling about S$432.8m (at last valuation), funds received by the REIT will be more than sufficient to pare down its loans (25% by end Dec’22) and pay a special dividend to unitholders.

Opportunity to bargain hunt?

"Based on ECWREIT’s historical trading price trend, the shares typically trade at a 10%-15% discount to NAV. Applying this same discount to its revised NAV according to the various scenarios, it looks like that the recent share price correction has been overdone. Its current share price implies discounts of between 33%-51% to its revised NAV, and we believe that this presents an opportunity to bargain hunt."

Given that it’s an interested party transaction (“IPT”), we envision unitholders should only accept a deal that is close to its NAV.

Inherent organic growth in the portfolio underpinned by master leases. With built-in rental escalations ranging from 1.0% to 2.5% for its master leases, this ensures organic growth to ECWREIT’s earnings.

Moreover, its multi-tenanted assets that cater to the fast-growing logistics industry also have the potential deliver revenue growth.

Valuation:
Our TP of S$0.70 is based on DCF and assumes a discount rate of 7.9% (risk-free rate of 3.0%). Our TP implies an 8.1% yield and a P/NAV of 0.75x.

Where we differ:
In addition to the one-off pre-termination compensation to be paid in FY22, we have also assumed an increase in all-in financing costs when maturing loans are refinanced during the year.


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


Share Prices

Counter NameLastChange
AEM Holdings3.7300.080
Avi-Tech Electronics0.275-0.015
Best World1.790-0.010
Broadway Ind0.1190.002
China Sunsine0.410-
DISA0.003-
Food Empire0.6500.030
Fortress Minerals0.345-
Geo Energy Res0.3550.005
Golden Energy0.7750.005
GSS Energy0.047-
InnoTek0.4750.025
ISDN Holdings0.4050.010
ISOTeam0.095-
IX Biopharma0.127-
Jiutian Chemical0.0760.001
KSH Holdings0.355-
Leader Env0.053-0.007
Medtecs Intl0.147-0.001
Meta Health0.0250.001
Nordic Group0.475-
Oxley Holdings0.1450.001
REX International0.2350.005
Riverstone0.6250.025
Sinostar PEC0.191-
Southern Alliance Mining0.405-
Straco Corp.0.405-
Sunpower Group0.255-
The Trendlines0.0940.001
Totm Technologies0.110-0.004
UG Healthcare0.1990.001
Uni-Asia Group0.8150.015
Wilmar Intl4.0900.030
Yangzijiang Shipbldg1.390-0.020

NextInsight RSS

rss_2 NextInsight - Latest News

Online Now

We have 779 guests and no members online