SINGAPORE (Jan 9): RHB Research is initiating a “buy” call on EC World REIT with a target price of 81 cents.
Currently, the REIT has seven logistics assets in China catering to the thriving e-commerce, logistics and supply chain segment that are well-positioned in future growth segments.
In a Tuesday report, analyst Vijay Natarajan says, “As its properties largely cater for domestic consumption, we see minimal impact from the US-China trade war and could potentially benefit from the Government’s push to boost domestic growth.”
Furthermore, the REIT has a strong sponsor support with 44% stake.
Sponsor Forchn has a more than 25-year track record with interests across diversified real estate and e-commerce sectors. Its wholly-owned subsidiary, RuiYiCang, is a leading China-based omni-channel e-commerce service provider that operates 35 warehouses in 23 cities.
Forchn is also one of the founding shareholders of smart logistics provider Cainiao Network and Alibaba, as well as other key logistics plays.
“With the sponsor holding a majority stake and being the master lessee of three key assets, we believe there is an alignment of interest from Forchn to ensure the REIT’s success,” says Natarajan.
On the other hand, one of the counter’s key overhang on its unit price is its reliance on sponsor master leases and potential impact upon the end-2020 expiry.
Following a recent site visit, Natarajan notes that master lease assets are steadily ramping up, with Forchn likely to extend another term.
“70% of income is backed by its sponsor’s master leases, which we expect will continue beyond the current term ending 2020,” adds the analyst.
Meanwhile, Forchn in Apr 2018 inked a framework agreement with YCH that gives it the option to acquire the latter’s 13 logistics assets across Southeast Asia and China when available. The analyst sees this as an attractive future growth opportunity as both regions are touted to be the world’s fastest-growing e-commerce and logistics markets.
The REIT’s gearing is current low at 30.5%, presenting a comfortable debt headroom of $250 million.
“With low gearing levels presenting debt headroom, the next leg of growth could come from the acquisition of YCH’s South-East Asia’s logistics assets – potentially transforming EC World into a pan-Asian logistics play,” says Natarajan.
As at 3.00pm, units in EC World REIT are trading at 70 cents or 0.8 FY19 book with a dividend yield of 9.2%.
