SooChow CSSD Capital Markets (Asia) Pte Ltd (SCCM) initiated coverage of EC World REIT today. Excerpts from the report:
Analyst: Tan Cheng Wee, CAIA
|Prime Beneficiary of Hangzhou Logistics Boom
Listed on the SGX in Jul’16, EC World REIT (“ECW”) offers exposure to high-specification e-commerce warehouses in China.
We initiate coverage with BUY and a DDM-based TP of S$0.88/unit.
• Maiden acquisition in Wuhan: ECW signed its first deal since listing with the acquisition of a third party asset Wuhan MeiLuoTe property in Feb 2018.
While acquisition yield is 4.9%, we expect the stabilized yield to reach 6.3% by FY18E. Post-acquisition, gearing remains low at 29%, implying S$224m of debt headroom (40% optimal gearing) for future acquisitions.
• Sponsor’s ROFR asset is ripe for harvest: The sponsor, Forchn Holdings Group (“Forchn”), offers ECW inorganic growth opportunities through right of first refusal (ROFR) for two pipeline assets. In our view, phase 3 of the Fu Zhou e-commerce properties is now ripe for injection after commencing operations in 2017, which could increase ECW’s underlying asset GFA by 34%.
• Leveraging on Sponsor’s growth trajectory: Forchn’s integrated smart warehousing and logistics services platform, RuYiCang, is growing rapidly nationwide. ECW is able to leverage on RuYiCang’s rising growth trajectory by acquiring assets with RuYiCang as the operator (asset-light business model). We expect ECW’s exposure to the e-commerce sector to rise in the near-term to 40%, from 29% currently.
|• Initiate with BUY: With rising exposure to e-commerce sector and yield anchored by steady master-leased assets (~60% of GRI), we initiate coverage with a BUY rating and a TP of S$0.88/unit.
ECW REIT offers attractive FY18E yield of 8.4% with 3.8% DPU CAGR from FY17-20E. It currently trades at sector-lowest 0.79x P/B.