HKkav

Page|1|PHILLIPSECURITIESRESEARCH(SINGAPORE)MCI(P)006/10/2019Ref.
No.
:SG2020_0031ECWorldREITProtectedbymasterleasesSINGAPORE|REALESTATE(REIT)|FY19RESULTS4Q19andFY19NPIandDPUwereinlinewithourforecastHighincomevisibilityduetoportfoliooccupancyof99.
9%andWALEof4.
1yearsFY19DPUdown2.
1%YoY;accretionfromFuzhouE-commerceacquisitionwipedoutduetoFXandtiminglagbetweendrawdownofloansandacquisitionMaintainBUYwithalowerTPofS$0.
83(prevS$0.
84).
OurTPtranslatestoaFY20eDPUyieldof8.
7%ThePositives+Solidportfoliotoweatherturbulence.
Highincomevisibilityduetoportfoliooccupancyof99.
9%,andWALEbyGRIof4.
1years.
Post-acquisitionofFuzhouE-Commerce,84.
4%ofFY20erevenueissecuredthrough4masterleasestotheSponsor,withbuild-inrentalescalationsranging1%to3%.
HengdeLogistics,thespecialisedlogisticassetcustomizedforandleasedtoastate-ownedtobaccocompany,contributesc.
8%toNPI.
Thisbringsthepercentageof"stable"leasesto91%.
TheNegatives-AccretionfromtheacquisitionofFuzhouE-commercewipedout.
DPU-3.
8%/-2.
1%in4Q19/FY19duetoFXandhigherfinanceexpenseand5%retentionofdistributableincome(DI)in4Q19.
HigherfinanceexpensewasduetothetimingmismatchofdrawdownofloansandtheacquisitionofFuzhouE-Commerceandthehigherloanquantum.
AcquisitionfinancingforFuzhouE-commerce(completedon8August2019)wasdoneinconjunctionwiththerefinancingoftheIPOloans(28Juneand8August).
DPUwouldhavebeen6.
13centsif100%of4Q19DIwaspaidout,butthiswouldstillhavebeen0.
8%lowerthanFY18DPUof6.
18cents.
5%ofDIwasretainedforworkingcapitalpurposedandunforeseencircumstances.
OutlookThemanagementreceivednotificationofnon-renewalof24,929sqmofspaceonaleaseexpiringin2Q20atWuhanMeiluote.
Thisrepresents50%ofWuhanMeiluote'sNLAof48,695sqm.
Occupancyisexpectedtofallfrom97.
7%to46.
7%.
Thisassetcontributes1.
6%togrossrentalincome(GRI)andwillnotaffectDPUmaterially.
Mutedleasingdemandisexpectedinthenearterm.
15.
7%ofleasesbyGRIisupforrenewalinFY20.
OneoftheleasesexpiringisforspaceatHengdeLogisticswhichisleasedouttoastate-ownedtobaccocompanyatbelow-marketrentals.
Withthecountryinastateofflux,broughtonbytheCovid-19outbreak,managementisguidingforflattishrentalreversionsonleasesexpiringinFY20.
5March2020Page|2|PHILLIPSECURITIESRESEARCH(SINGAPORE)ECWORLDREITRESULTSKeyrisktoourvaluationremainstheweakeningoftheRMB.
Themanagerhasreviseditshedgingstrategyfromaputspreadtoaplainvanillacalloption.
TheprevioushedgingstrategyemployedwouldonlyprotectECWifFXfluctuatedwithinacollar-exchangemovementsoutsideofthecollarwouldmeanthatECWwouldhavetotaketheprevailingmarketrate.
Theamendedstrategyeffectivelylocksinaworst-caseexchangerate.
MaintainBUYwithlowerTPofS$0.
83(prev.
S$0.
84).
WemaintainourBUYcallwithamarginallylowerTPofS$0.
83.
ThistranslatestoaFY20e/FY21eDPUyieldof8.
9%/9.
3%.
Page|3|PHILLIPSECURITIESRESEARCH(SINGAPORE)ECWORLDREITRESULTSPage|4|PHILLIPSECURITIESRESEARCH(SINGAPORE)ECWORLDREITRESULTSPage|5|PHILLIPSECURITIESRESEARCH(SINGAPORE)ECWORLDREITRESULTSHeadofResearchResearchAdminPaulChew–paulchewkl@phillip.
com.
sgSitiNursyazwina-syazwina@phillip.
com.
sgProperty|REITsSmall-MidCapBanking&Financials|HealthcareNatalieOng-natalieongpf@phillip.
com.
sgTanJieHui-tanjh@phillip.
com.
sgTayWeeKuang-taywk@phillip.
com.
sgTechnicalAnalystChina/HKEquityCreditAnalyst(Bonds)ChuaWeiRen–chuawr@phillip.
com.
sgZhengJieyuan–zhengjy@phillip.
com.
sgTimothyAng–timothyang@phillip.
com.
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