Excerpts from SooChow CSSD Capital Markets report
Analyst: Tan Cheng Wee, CAIA
|Boosted by maiden acquisition
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.
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.
♦ 2Q18 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.
|♦ 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.