EC World REIT – No go for me.
Updated: Feb 28, 2020
While most of the REITS in Singapore have either a commercial, retail and industrial flavour to it, EC World REIT gives you exposure to the e-commerce and port logistics properties in China, which caters to the domestic Chinese market.
Some noteworthy things from my skimming around the annual report and online articles:
8 properties so far: 3 eCommerce, 3 ports, and 1 specialised properties
Relatively consistent DPU from 2017 onwards
2017 = 5.984c
2018 = 6.179c
2019 = 6.107c
WALE of 4.3 years exceeding industry average
Potentially underserved market for e-commerce and video streaming. CEO says only 20% tapped so far, so if true then there is the potential for large growth.
Having used Shopee, Taobao, etc, I am very amazed at how efficient logistics are being done in China today.
Quarterly DPU distribution
In-built fixed rental escalation for master leases and multi-tenanted structures. Not sure about how the escalation works from 2020 onwards. Maybe the upcoming annual report will shed some light.
Its focus on the domestic market means that the REIT may not feel the short-term burn of the US-China trade war as of yet.
Gearing went up from 31.5% to 39.6%
Assets are RMB denominated but debt is S$ denominated.
Income collected in RMB but distributions are S$ denominated
47.7% of its valuation of the total portfolio comes from the port logistics properties
Myriad of leadership changes
3 senior leaders in the management team has left since its IPO in 2016:
CFO left in 2016,
CEO left in 2018,
CFO left in 2019
Pay-out ratio is around 85%.
We will need to check if this ratio is sustainable, and if the company may have to reduce DPU in future in order to fund more acquisitions. The scenario will most likely get rosier when their newest acquisition Fu-Zhou E-Commerce starts to generate income.
While there was a key matter highlighted in the 2018 audit report where EC World REIT had a large swathe of borrowings due in 2019, they filed an SGX announcement in July that these have been covered by the drawdown on loan facilities: https://links.sgx.com/FileOpen/EC%20World%20-%20Drawdown%20on%20Loan%20Facilities.ashx?App=Announcement&FileID=572145
While the price has been on a downtrend since early December, the last couple days has seen the share price challenging the relatively stronger 61.8% resistance at 0.751c. If it does manage to break through this, then the next resistance would most likely be found at 0.759c.
The next support is at 0.745c and I won’t be surprised if it does falls through this and hovers around the 38.2% support around 0.739c.
We’re also seeing a divergence of the MACD signal which may hint at some trend reversal.
Volume-wise, today (20th Jan 2020) saw about 10.1m units exchanging hands. That is well above the average daily volume of about 2m. No word on any insider movements on SGX as well. Who knows?
The 50MA is on a sharp decline, showing some short-term reduced market sentiment for this. The 200MA seems to have hit its peak in early December 2019 and looks to be slowly coming down. The 200MA usually give us a better indication of long-term sentiment.
Analysts (heed them at your own risk) gives a target price of about 82c – 87c.
All in all, I am not totally comfortable with this ticker and thus I’ll give it a hard pass without the need for further evaluation into its financials. The deal breaker for me are the constant leadership changes and the forex exposure to RMB. Having a great management team is very important, and if we are seeing the CEO and 2 CFOs leaving after 1-3 years of service then long-term strategic plays cannot be realised properly, even if the mandate set by the Board was a great one.
Second, with Trump up for a re-election this year, its very hard to predict how the US-China relations will play out. Chinese e-commerce no doubt reigns supreme today for us Singaporeans and also others in the region, and will most likely stay so for the mid-long term. After all, how many times have we already heard newly-weds proudly proclaiming that they just bought all their furniture from taobao instead of going through a local retailer? I am not so bullish on video streaming sites and it sort of feels like a bubble that will pop eventually as the market gets increasingly saturated with the same tik-tok style videos.
Anyway, we can speculate all we want, but at the end of the day it will still remain as speculation. I prefer hard facts which, even though may be delivered bitter, can still be relied on. And the facts are currently showing me that I should pass up on this one.