SINGAPORE (March 2): Religare Institutional Research has initiated coverage on EC World REIT with a “buy” recommendation and a target price of 92 cents.
“With vast growth opportunities in China’s e-commerce space and strong government and sponsor support, ECW is well positioned for growth,” Religare analyst Pang Ti Wee says in a Thursday report.
According to Pang, China’s e-commerce sector has seen online retail growth soar to RMB3.95 trillion ($808 billion) in 2015. ECW’s high-specification e-commerce warehouses in China put it in a unique position to capitalise on this growth.
“We think ECW is well positioned for both organic and inorganic growth over the next 3-5 years,” Pang says.
Its sponsor, Forchn Holdings Group, offers ECW inorganic growth opportunities through right of first refusal (ROFR) for two assets. These assets, if injected, will expand the REIT’s portfolio in terms of gross floor area by 54.8%.
In addition, Pang estimates that Forchn’s rapidly-growing integrated smart warehousing and logistics services platform, Ruiyicang, could potentially acquire around 300,000 sqm of assets over the next 12-18 months.
“Assuming a 40% leverage ratio, we estimate debt headroom of close to RMB1.3 billion to fund future acquisitions,” Pang adds. This war chest, he says, “gives the REIT ample room to deliver yield-accretive inorganic growth.”
Alongside its strong fundamentals, Pang also notes ECW’s “attractive valuations of 0.8x P/BV and an attractive FY17F dividend yield of 7.7%”.
In comparison, ECW’s peers are trading at an average of 1.08x P/BV.
Units of EC World REIT last closed at 74 cents on Feb 28.
