SINGAPORE (May 18): Following China’s easing of lockdown measures in March, it’s almost back to business for EC World REIT’s tenants.

On the back of that, DBS analysts Dale Lai and Derek Tan, RHB analyst Vijay Natarajan, and KGI analyst Amirah Yusoff, have maintained their “buy”, or “outperform” calls on the REIT, citing its stable portfolio of master leases in the logistics sector.

However, both RHB’s Natarajan and KGI’s Yusoff have trimmed their target price on EC World REIT: from 78 cents to 76 cents, and from 82 to 73 cents, respectively. DBS’s Lai and Tan, meanwhile, have maintained their target price at 80 cents.

Expectations on the REIT, however, are lowered to reflect the disruption operations caused by Covid-19, and the RMB23.7 million (S$47.5 million) worth of rental rebates that were given to EC World REIT’s tenants.

On Tuesday, May 12, EC World REIT reported a 22.9% y-o-y decline in distribution per unit (DPU) to 1.158 cents for 1Q20. Gross revenue dipped slightly at 1.4% y-o-y to $23.5 million. Net property income (NPI) also fell slightly 0.2% y-o-y to $21.1 million.

“Despite the weaker performance in 1Q20 due to the rental rebates, we expect ECW to report strong earnings for the rest of FY20,” say DBS’s Lai and Tan, who have assumed “slightly lower occupancy rates and flat rental reversions for its multi-tenanted properties”.

The full year contribution from Fuzhou E-Commerce and rental escalations for master leases is also expected to mitigate the REIT’s lacklustre earnings.

“We continue to like EC World REIT for its stable portfolio metrics and long WALE that provides earnings visibility. Since the easing of COVID-19 containment measures in March 2020, tenant operations have ramped up very quickly and are mostly back to normal,” say Lai and Tan.

RHB’s Natarajan believes that “The REIT’s pure-play exposure to the logistics segment, and long master leases, as well as the gradual recovery of the China market puts it in a relatively good position”.

“Valuations are reasonably attractive, at 0.8x price per book value,” he says, trimming EC World REIT’s FY20-22 forecast DPU by 10%, 5%, and 5% respectively, to reflect rental rebates given for FY20, lower rental growth, and the payment of management fees in cash.

KGI’s Yusoff remains “optimistic but conservative” on the REIT due to the slow macro outlook in China. “We have factored a slower reversion rate and a slightly higher cost of capital into our valuations due to the uncertainties relating to China’s economy,” she says. “Our revised TP represents a total upside of 17.2% (incl. FY20F div. yield of 8.1%)”. 

As at 10.20am, EC World REIT was trading at 67.5 cents, unchanged thus far today.